NEW DELHI: An expert panel of the Planning Commission has pulled up the finance ministry for underestimating the food subsidy in the Budget, saying the unrealistic assessment would lead to avoidable payment of arrears and interest payouts.
A working group for the 12th Five Year Plan (2012-17) said in a report that since implementing the Food Security Bill will raise the government’s subsidy burden from Rs 80,000 crore in 2011-12 to over Rs 1,00,000 crore, the finance ministry should have budgeted a more realistic amount for food subsidy.
The ministry has earmarked Rs 75,000 crore for food subsidy in 2012-13.
“When the Food Security Bill is implemented, the subsidy levels will rise to more than Rs 1 lakh crore,” a senior official in the Planning Commission told ET. “If the figures are under-budgeted, then interest payouts on such a huge sum will be devastating for the fisc.”
The official said the commission would raise the issue with the ministry. “We had taken up the issue with the finance ministry earlier and we will take it up again,” the official said. “There have also been discussions to include food subsidy within Plan expenditure for better monitoring.”
In its report, the group has suggested that the government release 75% of the budgeted subsidy within the first quarter. This will check delay in payments from central agencies to states and cut down the interest payouts.
The report notes that in 2011-12, the budgeted amount for food subsidy to be paid to the Food Corporation ofIndiawas Rs 47,239 crore, 64% below the actual subsidy levels by the end of the year.
The government owed an additional Rs 11,743 crore in arrears excluding interest payouts to four states that have decentralised procurement.
Food subsidy to procurement agencies by the government is generally due by the end of the product cycle after issue of stocks for the Public Distribution System and other welfare schemes. The actual requirement of funds is, however, at the first stage when bulk of the procurement takes place in the first two-three months of the financial year.
This leads to the agencies like FCI borrowing money from banks and other organisations to fund their procurement activities at commercial rates of interest.
“It has been the experience of past 20 years that the budgetary allocation of food subsidy at BE stage is always fully utilised and practically every year additional supplementary demands are made,” the report said.
“Under such circumstances, adhering to the standard principles of equal release every quarter results in avoidable payment of interest to the commercial banks,” it said.
The working group has also sought a uniform national level procurement tax to be levied by state governments instead of state specific tax rates as they will hinder the cost calculations of implementing the Food Security Bill.
The report has stressed on reforming the administrative structure of FCI, saying it is at present incompetent to effectively implement the Food Security Bill. The working group has made a case for allowing FCI to raise money from sources other than subsidy payments and other grants from the ministry, increasing the working capital that has been stagnant for the last 15 years and allowing FCI to hire contract labourers for construction of storage capacities.
“These are issues that are going to hinder the roll out of food security and they have not been given any attention till now,” added the official.