Budget 2019: What can we expect on food, fertilizers, petroleum subsidies from FM FM Nirmala Sitharaman? Find out!

Budget 2019: Just like other expenses, subsidies are also part of the government's expenditure in the books of accounting. Every budget, the government announces subsidies for various categories like food, fertilizers and petroleum. By way of subsidies, government provides financial assistance to individuals or companies, which can be in the form of cash, incentives or tax reduction. In the interim Budget 2019, which was presented by interim Finance Minister Piyush Goyal, the NDA government had set aside Rs 37,478 crore subsidy for petroleum for fiscal FY20. While food subsidy allocation was increased to Rs 1.84 lakh crore for the same fiscal. However, the new Finance Minister Nirmala Sitharaman who will be announcing the full Budget 2019 on July 05, 2019, can be expected to largely contain subsidies at 1.4% of GDP. 

Food subsidy which stood near Rs 1.15 lakh crore during Budget 2014, inched up by 47% by the end of 2018 Budget to Rs 1.69 lakh crore. Meanwhile, fertilizers subsidy was set at Rs 70,090 crore in 2018, compared to Rs 36,970 crore back in Budget 2014. Interestingly, the petroleum subsidy is divided in LPG and kerosene, where the government had allocated Rs 20,377 crore and Rs 4,555 crore in the previous budget. It needs to be noted that, every rise in subsidies is an expense which is borne by the government, and accordingly makes an impact on total receipts. 

However, recently, SBI Ecowrap cited that, on the fiscal front, the latest data shows that the Government has been able to meet the revised fiscal deficit estimate of 3.4% of GDP. However, there has been Rs 1.45 lakh crore reduction in expenditure with Rs 69,140 crore cut in subsidies (major cut in food subsidy of Rs 69,394 crore), covering for Rs 1.57 lakh crore reduction in total receipts. 

Dr. Soumya Kanti Ghosh, Chief Economic Adviser at SBI Ecowrap said, “Now that FY19 estimates are revised, the FY20 BE seems to be on the higher side. Given growth slowdown that the country is facing, the question arises whether the Government should continue to focus on fiscal consolidation path or keep the deficit numbers constant for the next two years before reducing it further and try to propel growth.”

(Image Source: ICICI Securities)

For final Budget 2019, research analyst at ICICI Securities in their note said, “Central government provides subsidies under three broader heads namely Fertilizer, Food and Petroleum. With stable commodity prices, we expect the government to largely maintain the FY20E budget estimates and contain it to under Rs 3 lakh crore or 1.4% of GDP.”

(Image source: ICICI Securities)

Interestingly, in regards to petroleum subsidy the note also pointed said, “On ballpark basis, for every US$ 5/barrel increase in the price of crude, subsidy bill increases by Rs 5,500 crore. In our base case scenario of crude at US$ 65/barrel, government will bear subsidy of Rs 37478 crore for FY20E .”