Context

As finance minister presents the budget the FM need to ensure transparency and to fully account for the food subsidy.

The excess buffer stock and need to reform

• A buffer stock norm and actual stock: A buffer stock norm is at 21.4 million tonnes (mt).
  • Actual stock far exceeds the norm: The actual stocks of grains with the central pool stood at 75.5 mt.
  • Which is 3.5 times what the government needs to hold.
• The economic cost of the excess stock: At its economic cost, the value of the excess stocks with the government stands at Rs 1.6 lakh crore.
  • Potential for revenue: There is no better place to find revenue for the FM than to liquidate these stocks.
  • Need for the reform in grain management system: Unless the grain management system is reformed, the inefficiency of the grain management system will keep on increasing and the nation will suffer.

Food subsidy reforms

• Link food prices to procurement price: It is the time to revise the central issue of price and link it to the procurement price-say at half the procurement price.
  • Limit the population coverage: There is a need to limit this highly subsidised food of Rs 3/kg for rice and Rs 2/kg of wheat to say 40 per cent of the population.
  • Move to DBT: The real fundamental reform would be to move towards direct cash transfers for the intended beneficiaries of food subsidy.

Fertiliser subsidy reforms

• Imbalance in the subsidisation: The real problem of this sector is the imbalance in the policy of fertiliser subsidisation.
  • While urea (N) is subsidised to the extent of 75 per cent of its cost, phosphatic (P) and potassic (K) fertilisers are subsidised only to the tune of about 25 per cent of their cost.
• Consequences of this imbalance: The result is the highly imbalanced use of N, P and K on farmers’ fields. Which results in
  • Giving a very low fertiliser-to-grain response ratio.
  • Degrading the soil.
  • Degrading underground water.
  • Degrading the environment with excessive nitrogen use.
  • Discouragement to natural farming: The current fertiliser subsidy discourages those who want to pursue natural farming as they don’t get subsidy anywhere near the amount chemical-based fertilisers do.
• Reforms: There are two ways in which the fertiliser subsidy regime can be reformed.
  • Bring nitrogenous fertiliser under NBS: The solution to the imbalance in use is to bring nitrogenous fertilisers under the Nutrient Based Subsidy (NBS) scheme.
  • Cash transfer based on per hectare basis: The second option is to move towards direct cash transfers for fertilisers on a per hectare basis, with some adjustment for irrigated tracts.
  • 50,000 Crore saving: The above-mentioned reforms could result in the saving of Rs. 50,000 crores to the public exchequer.

Way forward

• Investing the savings where it matters the most: The savings from the reforms could be invested in-
  • Better water management, especially drip irrigation.
  • Infrastructure for agri-markets.
  • Solar trees: The investments could also be made in setting up the solar trees in the farm to harvest solar power on farmer’s fields with buyback agreements for surplus production.

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