Union Health Minister Mansukh Mandaviya. File
| Photo Credit: ANI

Talking to reporters about his new book ‘Fertilising the Future: Bharat’s March Towards Fertiliser Self-Sufficiency’, Union Fertilizers Minister Manuskh Mandaviya said here on Wednesday that consistent steps taken by the Narendra Modi government are leading to decrease in fertilizer subsidies and self reliance in fertilizers production. He said the country has adequate stocks of fertilizers for the ongoing rabi and upcoming kharif seasons.

The Minister said the country has stocks of 70 lakh tonnes of urea, 20 lakh tonnes of Di Ammonium Phosphate, 10 lakh tonnes of Muriate of Potash, 40 lakh tonnes of nitrogen, phosphorus, and potassium and 20 lakh tonnes of single super phosphate at present. 

When asked about the subsidy, he said it is likely to come down and is estimated at around ₹1.7-1.8 lakh crore.

“Subsidy is expected to be lower this year because of fall in global prices. We have not increased retail prices to reduce subsidy,” he said.

He added that when the prices increased globally, the Centre increased subsidy to protect farmers interest and retail prices did not change. “The government’s fertiliser subsidy bill is likely to decline 30-34% to ₹ 1.7-1.8 lakh crore this fiscal due to fall in global prices and lower imports of urea,” Mr. Mandaviya added.

He said the domestic production of urea has increased as four urea plants have already been revived and the fifth is set to start production soon. Nano liquid urea and nano liquid DAP are being promoted by the Centre, he said adding that States are getting incentives to curb use of chemical fertilizers. “India has entered into long-term supply agreements with global suppliers for assured imports of fertilizers and its raw materials at pre-determined prices,” he said.

On the attacks against commercial vessels in Red Sea, he said it will not create any shortage of fertilizers in the country. “Ministry of External Affairs is making necessary interventions and our Navy is giving protection to Indian cargo vessels,” Mr. Mandaviya said.

A farmer spreads fertiliser on his field in Satara district, Maharastra. File
| Photo Credit: Reuters

India may earmark about $48 billion for food and fertiliser subsidies for the next fiscal year, two government sources said, indicating fiscal caution ahead of this year’s general election.

Food and fertiliser subsidies account for about one-ninth of India’s total budget spending of over ₹45 trillion during the current fiscal year that ends on March 31.

The Ministry of Consumer Affairs, Food and Public Distribution has estimated next year’s food subsidy bill at $26.52 billion, the two sources said. That is 10% higher than a projected outlay of nearly $24.11 billion for the current 2023-24 fiscal year.

Additionally, next fiscal year’s fertiliser subsidy is expected to be $21.10 billion, down from the current 2022-23 fiscal year estimate of nearly ₹2 trillion, one of the sources said. The sources, which are directly involved in the decision making on the subsidies, did not wish to be named as they were not authorised to speak to the media.

Finance Minister Nirmala Sitharaman will unveil the Union Budget 2024-25 on February 1.

The Ministry of Finance, the Ministry of Chemicals and Fertilizers and the Ministry of Consumer Affairs, Food and Public Distribution and the Ministry of Finance did not reply to requests for comment.

Maintaining the combined subsidies at their current level would be unusual for a government facing a general election in just a few months, but Prime Minister Narendra Modi is widely expected to win a third term in elections scheduled for April and May. Also, containing food and fertiliser subsidies is crucial for managing India’s fiscal deficit, which Mr. Modi’s Government is targeting at 5.9% of gross domestic product this year and planning to lower by at least 50 basis points in the fiscal year 2024-25.

The food subsidy bill is likely to go up next year as the Centre late last year extended its flagship free food welfare programme for the next five years. India runs its multi-billion dollar food welfare programme, the world’s biggest such initiative, by buying rice and wheat from millions of domestic farmers at state-set minimum or guaranteed prices and then supplying the staples for free to 800 million Indians.

A farmer spreads fertilizer in a field, at a village in Madurai.
| Photo Credit: PTI

Globally, there is a twin crisis in agriculture: in food and in fertilizers. On the one hand, there are fears of a fall in the global production and availability of food. The rise in food inflation has been an area of serious concern for the government and the Reserve Bank of India. On the other, global fertilizer prices have risen by about 200% over the past two years. Consequently, the prices of fertilizers and other farm chemicals in India have also shot up.

Domestically, the Union government has the unenviable task of explaining why it failed to double the real incomes of farmers between 2015 and 2022. Official data show that real incomes from cultivation have fallen in absolute terms after 2015. Between 2020-21 and 2022-23, annual growth rates in agriculture and allied sectors have been stagnant between 3% and 3.5%. Agricultural exports have risen, but the impact of this has been insignificant outside a handful of commodities.

Thus, the objectives of the Budget could be formulated as two-fold: one, it must have protected farmers and consumers from the food and fertilizer crises; and two, it must have taken steps to raise net incomes from cultivation.

Disappointing allocations

It was widely expected that food and fertilizer subsidies would be retained or increased. The restructuring of the food distribution guidelines, which effectively ended a part of the free supply of food grains under the Pradhan Mantri Garib Kalyan Anna Yojana, was a disappointment even prior to the Budget. The Budget has reaffirmed that stance and cut food subsidy from ₹2.87 lakh crore in 2022-23 (RE) to ₹1.97 lakh crore in 2023-24 (BE). Fertilizer subsidies have also been cut from ₹2.25 lakh crore to ₹1.75 lakh crore. In effect, these cuts will expose farmers to the vagaries of the global market and render the economics of agriculture more fragile. Landless households in rural areas are also likely to be affected adversely, as the allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme has been cut from ₹73,000 crore in 2022-23 (BE) to ₹60,000 crore in 2023-24 (BE).

The cut in fertilizer subsidies will increase the costs of cultivation for farmers, but there is no amelioration to be expected from a compensatory rise in output prices. The rise in minimum support prices between 2020-21 and 2021-22 just covered for the rise in input costs and did not leave any space for higher net incomes.

Editorial | A raft of concessions amid consolidation: On Budget 2023-24

There has been no solace on the production front too. Yields in agriculture remain low. Rising fertilizer prices have led to lower consumption of fertilizers in farms, leading to imbalanced nutrient application and even poorer prospects of yield rise. The government, on the other hand, has been promoting variants of “natural farming”. The Budget has even allocated ₹459 crore to a new National Mission on Natural Farming. But natural farming has no scientific validation and is likely to reduce crop yields by 25-30%. If yields fall, how can farming stay viable in the face of rising input prices and stagnant output prices?

Capital expenditure

Amidst all the talk of raising capital expenditure, agriculture presents us with a story of utter neglect. Capital investment is required in agriculture not just for irrigation but also to build/improve agricultural markets (mandis). The total capex of the government in 2022-23 was ₹7.5 lakh crore, but allocation under the capital accounts of crop husbandry, animal husbandry, dairy and fisheries was just ₹119 crore. In 2023-24, this is expected to fall to ₹84.3 crore. Under the capital account of irrigation and flood control, the budgeted allocation in 2022-23 was only ₹350 crore, which is slated to fall to ₹325 crore in 2023-24. The Agriculture Infrastructure Fund (AIF) is another much-touted scheme. The budgeted allocation for AIF in 2022-23 was ₹500 crore, of which only ₹150 crore was spent. In 2023-24, the allocation of ₹500 crore has been retained.

The Finance Minister made a series of other announcements on agriculture in her speech, but the allocations for these schemes or scheme components are not listed in the Budget documents. Essentially, all these are fragmented allocations thinly spread across diverse departments with only an indirect or marginal impact on the agricultural sector. Good examples are the Agriculture Accelerator Fund, PM-Pranam, GOBARdhan, Bhartiya Prakritik Kheti Bio-Input Resource Centres, Mishti, and Amrit Dharohar. There was much time spent in the speech on millets too, but without any explicit allocation other than in upgrading a Centre for Excellence in Hyderabad. There was yet another announcement on a targeted investment of ₹6,000 crore under the Pradhan Mantri Matsya Sampada Yojana, but the actual increase in allocation in the Budget papers is only ₹ 121 crore.

The Budget fails to address the most pressing problems in Indian agriculture. The lack of a scientific and grounded vision, which must have ideally driven the quantum and direction of allocations, is telling.

R. Ramakumar is Professor at the Tata Institute of Social Sciences, Mumbai

‘The Finance Minister has continued the trend of making a greater allocation to infrastructure spending’
| Photo Credit: ANI

The Economic Survey that was placed in Parliament before the presentation of the Budget for 2023-24 has laid emphasis on the point that India has staged a remarkable broad-based recovery to reach the level of income that existed before the outbreak of the novel coronavirus pandemic. There have been a series of shocks that began with the pandemic, followed by the war between Russia and Ukraine and the accompanying sanctions that have been imposed by the West on Russia, the slowdown and the recession in major parts of the world and the rise in inflation leading to sharp increases in interest rates, followed by capital outflow and the pressure on the exchange rate.

Growth and the fiscal deficit shadow

Even though the economy has staged a recovery and surpassed the pre-pandemic income level, it is still 7% below the pre-pandemic GDP trend; growth has to be fuelled by increasing public investment. At the same time, with inflation still beyond the upper tolerance limit and aggregate fiscal deficit (Centre and States) still in the range of 9% to 10% of GDP, ensuring macroeconomic stability requires continued fiscal consolidation. Thus the government is faced with the dilemma of accelerating growth by increasing public investment while containing the fiscal deficit. With interest payments accounting for 40% of the net revenues of the Centre, there is hardly any room for complacency.

Interestingly, keeping the fiscal deficit limited to 6.4% of GDP in the current fiscal has come about despite a sharp increase in food and fertilizer subsidies, by ₹2 lakh crore. While the higher than budgeted buoyancy in net tax revenues by almost ₹1.6 lakh crore has helped, a significant part of the adjustment is due to an increase in the denominator, the nominal value of GDP as compared to the assumption made in Budget 2022-23. The Budget estimate had assumed the nominal GDP for 2022-23 at ₹258 lakh crore whereas the first advance estimate of GDP released a few days ago estimated it at ₹273 lakh crore. In other words, despite the revenue deficit increasing in absolute terms, from ₹9.9 lakh crore in the Budget estimate to ₹11.1 lakh crore in the revised estimate, as a percentage of GDP, it was from 3.8% of GDP to 4.1%. In the case of fiscal deficit, the increase was by ₹1 lakh crore — from ₹16.6 lakh crore to ₹17.6 lakh crore, but it was contained at 6.4% of GDP mainly due to the increase in the nominal value of GDP and also the increase in tax collections.

A balancing act

Considering the challenges of increasing infrastructure spending while continuing with fiscal consolidation, it has been a fine balancing act on the part of the Finance Minister. She has continued the trend of making a greater allocation to infrastructure spending, and the capital expenditure is budgeted to increase from 2.7% of GDP to 3.3%. In absolute terms, the increase is from ₹7.3 lakh crore to ₹10 lakh crore, which is almost 37%, and considering that capital expenditure has a significant ‘crowding in’ effect, it should help to increase private capital expenditures as well. This comes after the 25% increase in capital expenditures in the last Budget.

The Reserve Bank of India has estimated the multiplier effect of capital expenditure at 1.2 — and that should help revive the sagging investment climate. Commercial lending by banks is already on the rise and with deleveraged balance sheets, the increased capital spending should help revive the investment climate further and arrest the declining trend in the overall investment-GDP ratio in the country. Further, the continuation of the interest-free loan to States to augment their capital expenditures should help in increasing States’ capital expenditures as well. Perhaps, the 6.5% growth rate for 2023-24 estimated in the Economic Survey, which was otherwise considered too optimistic, could indeed materialise with the budgeted increase in infrastructure spending.

The Finance Minister in the 2020-21 Budget had stated that she would bring down the fiscal deficit to 4.5% by 2025-26. That means that in the next three years, the deficit will have to be reduced by 1.9 percentage points. In keeping with this, the fiscal deficit for 2023-24 is slated to come down to 5.9%. However, it will make the adjustment in the two years ahead that much harder. Although nine States will have elections this year, front-loading the adjustment would have eased the situation next year when the country has the next general election. Perhaps, the Finance Minister assumed that by propelling growth this year through higher capital expenditure, the fiscal adjustment will become easier in the next two years.

Compression in subsidies

The fiscal adjustment is proposed to be achieved by mainly containing revenue expenditure, which will improve the quality of public spending if it happens. The budgeted increase in revenue expenditures for 2023-24 is just 1.2% higher than the revised estimate for the current year. There is a significant compression in subsidies. The food subsidy is expected to be reduced by ₹90,000 crore from ₹2.87 lakh crore to ₹1.97 lakh crore. (The fertilizer subsidy is budgeted to be reduced from ₹2.25 lakh crore in 2022-23 (RE) to ₹1.75 lakh crore in 2023-24 (BE). Thus the fertilizer subsidy in 2023-24 is budgeted lower by ₹50,000 crore.) The policy to this effect has already been made in December 2022, when the Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY) under which 5 kg of foodgrains were given from April 2020, in addition to the foodgrains given under the National Food Securities Act has been discontinued. Similarly, the fertilizer subsidy is expected to be compressed by ₹50,000 mainly as fertilizer prices have come down. In addition, allocation to centrally sponsored schemes is expected to come down marginally by about ₹20,000 crore, and the overall current transfer to States is kept constant at 3.3%-3.4% of GDP.

On the tax side, there is some tinkering of customs duty, and the overall protectionist stance has continued. On the personal income tax front, the attempt has been to incentivise taxpayers to move to the new tax regime with no concessions and lower rates. Even so, the increase in the number of tax brackets is cause for worry. Perhaps, it would have been preferable to move over to the new tax regime with fewer brackets.

On the whole, this is a well-crafted Budget, but its success will depend on its implementation.

M. Govinda Rao is Chief Economist, Brickwork Analytics, a former Director of the National Institute of Public Finance and Policy, and a Member of the Fourteenth Finance Commission

Image for representation purpose only.
| Photo Credit: K.K. Mustafah

Considering the huge increase in the prices of fertilizers in global market, the Centre has ‘doubled’ the fertilizer subsidy for this rabi season. A meeting of the Union Cabinet here on Wednesday approved a subsidy of ₹51,875 crore to Nitrogen (N), Phosphorus (P), Potash (K) and Sulphur (S) for Phosphatic and Potassic (P&K) fertilizers for the ongoing rabi season.

From the budget estimate of ₹21,000 crore of nutrient-based subsidy, the amount has been more than doubled, said Union Minister for Fertilizers and Chemicals Mansukh Mandaviya. Briefing reporters after the meeting, he said the Centre revised the subsidy keeping the increasing market prices in mind.

‘Highest so far’

He said the total fertilizer subsidy for the rabi season, including ₹80,000 crore for urea, would be ₹1,38,875 crore and for both the rabi and kharif, the subsidy amount would be ₹2.25 lakh crore. “This is the highest subsidy so far. Last year it was ₹1.65 lakh crore,” Mr. Mandaviya said and added that as commercial prices had doubled due to the Ukraine-Russia conflict and the logistics issues due to pandemic the Centre decided to double the subsidy component too. “Increased prices would have burdened the farmers. We have ensured that there will not be any increase in the fertilizer prices in the next six months,” he said.

Also Read | Reforming the fertilizer sector

Mr. Mandaviya said a bag of Diammonium Phosphate cost ₹1,350 and it would have been cost ₹2,650 without subsidy. On urea, he said, the subsidy was around ₹2,400 per bag as a bag was being sold for about ₹266 instead of the market price, which was ₹2,700.

He added that the Centre had taken up measures to increase production of urea in the country. While the requirement was 350 lakh metric tonnes (LMT), the production in the country was 250 LMT. He said four new plants were coming up and nano urea would also replace the use of urea slowly. Mr. Mandaviya said the country had enough stock of fertilizers for this season and reports about farmers queueing up to buy fertilizers were blown out of proportion.

Also Read | No shortage of fertilisers in the country, says Mandaviya

The Centre said the move would help the farmers. “This will enable smooth availability of all P&K fertilizers to the farmers during rabi 2022-23 at the subsidised / affordable prices and support the agriculture sector. The volatility in the international prices of fertilizers and raw materials has been primarily absorbed by the Union government,” a government release said.