Losing sleep over enormity of subsidies: Pranab

Ahead of Budget 2012-13, finance minister Pranab Mukherjee today rang the alarm bell over rising subsidies, even as the farm and food ministries conveyed differences over the proposed Food Security Bill, which would also mean a hole in the Centre's exchequer. Mukherjee was speaking at a conference on targeted PDS and storage.

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Mukherjee said he was worried over the enormous subsidy burden the government was bearing and would have to bear in the near future. "As finance minister, when I think of the enormity of the subsidies to be provided, I lose my sleep. There is no doubt," he said.

He added at the same time, the government had to rise to the people's expectation of empowerment through entitlement backed by a legal right, as was being done through the Mahatma Gandhi National Rural Employment Guarantee Act and the Right to Education. "Today (after 65 years of independence), people are not ready to wait any longer....Today, they are eager to have their empowerment....Not in the documents of the Planning Commission or the assurance of policymakers, but entitlement backed by a legal enactment. That is the rationale of having the Food Security Bill," Mukherjee said.

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The minister's comment on the problem of a huge subsidy burden assumes significance, as it comes just weeks before the 2012-2013 annual Budget would be presented in Parliament. The government's subsidy burden in 2011-12 is projected to overshoot the Budget estimate by a whopping Rs 100,000 crore.

The comment also points towards the financial constraints the ministry is facing to provide for the National Food Security Bill. The agriculture ministry estimates the Bill would raise food subsidy to Rs 120,000 crore, depending upon the increase in the minimum support price, while the food ministry estimates subsidy would rise by just around Rs 28,000 crore, while grain procurement, as a percentage of production, would stand at about 30 per cent.

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The Centre's fiscal deficit is expected to settle at around 5.6-5.7 per cent of gross domestic product, overshooting its target by a full percentage point, largely due to subdued revenue collection, poor disinvestment receipts, high global commodity prices and the increasing subsidy bill.

Agriculture minister Sharad Pawar said the Food Security Bill would never succeed in achieving its goal if the grains were pushed through the rickety Public Distribution System (PDS). "My only concern is whether the existing mechanism is compatible enough with the spirit of this Act. At this juncture, we have serious limitations on all fronts like capacities of mandis, financial position of state agencies, manpower etc. Even at the current level of procurement, railways are finding it difficult to handle the movement of grains from producing states to consuming ones," Pawar said.

He also raised concern over the failure of an assured guarantee from government procurement agencies that had disincentivised farmers from sowing foodgrains, leading to a shift towards non-food crops. "This would drastically impact the food security of the nation," Pawar said.

Playing down the subsidy burden because of the Bill, food minister K V Thomas said the subsidy would, in any case, rise to around Rs 85,000 crore after new beneficiaries were added following the completion of the Socio-Economic Caste Census 2011, irrespective of the food Bill. "The new BPL (below poverty line) census would have, in any case, raised the food subsidy to over Rs 85,000 crore, even if there was no food Bill," Thomas said. He said the interaction with state food ministers was meant to address all such issues over procurement, storage and the distribution of grains.

The Food Security Act aims to provide legal entitlement over subsidised foodgrains to 63.5 per cent of the country's population.