LPG subsidy is here to stay notwithstanding proclamations by successive governments to end it. This is because actions on the ground are driven by populism, not economics Subsidy on LPG is the excess of its cost of supply over the price paid by the beneficiary. (Representative image) In the Union Budget for 2023-24, finance minister Nirmala Sitharaman has kept the budget estimate (BE) for petroleum subsidy – primarily subsidy on liquefied petroleum gas (LPG) for household consumption – for 2023-24 at a mere Rs 2,257 crore. The subsidy on the purchase of a product is a financial assistance given by the state to persons who cannot afford to pay the market-based or cost-plus price. Subsidy on LPG is the excess...
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News & Media
Exit from LPG subsidy, completely
In June 2020, the Government stopped giving LPG subsidies. It is time to do away with the hidden subsidy on the cylinder for better fiscal management In the Union Budget for 2023-24, finance minister Nirmala Sitharaman has shown an expenditure of Rs 9,170 crore on petroleum subsidy (this is primarily a subsidy on LPG for household consumption) during 2022-23 as per the revised estimates (RE). She has kept the budget estimate (BE) for 2023-24 at Rs 2,257.09 crore. By definition, a subsidy on the purchase of any given product is financial assistance given by the state to a certain class of persons who cannot afford to pay the market-based or cost-plus price from their limited income. Subsidy on LPG is...
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Levy 5% GST on natural gas to reduce fertiliser subsidy
Bringing natural gas under GST can end the extant differential taxation regime/varying urea cost and subsidy payments across states. It will eliminate the cascading effect of tax on tax Fertilisers attract GST at the rate of 5 percent. This together with low MRP results in a scenario where output tax liability is insufficient to offset taxes paid on inputs such as natural gas. Finance minister Nirmala Sitharaman has said that the tax rate for five petroleum goods – crude oil, natural gas, petrol, diesel and aviation turbine fuel (ATF) – can be fixed under the Goods and Services Tax (GST) as soon as the states give their consent at a GST Council meeting. GST is a ‘single tax’ applied all...
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Subsidies will derail fiscal deficit target
The shift from giving food at Rs 2/3/1 per kg to “free” would lead to an additional outgo of about Rs 13,000 crore In the Union Budget for 2023–24, Finance Minister Nirmala Sitharaman has stuck to the fiscal deficit (FD) target of 6.4 per cent of GDP in the revised estimate for 2022–23. She has kept the target for 2023–24 at 5.9 per cent. However, payments on major subsidies such as fertilisers and food, which account for a significant share of the Union government’s total expenditure, could play spoiler. Fertiliser subsidy—payments made to manufacturers or importers to cover the excess of the cost of production/import and distribution of fertilisers over the low maximum retail price (MRP) fixed by the government—was budgeted...
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Budget revolutionises personal income tax
The new personal income tax regime will spur economic growth as it leaves more cash in the hands for people In Budget 2023-24, Finance Minister Nirmala Sitharaman has made some radical changes in the structure of personal income tax (PIT). To get a sense, let us first take a look at what she did in her Budget 2020-21. Then, Sitharaman had announced the Modi Government’s intention to move towards a regime that was simple, free from a plethora of exemptions and deductions, and reduced the tax liability of assesses, thereby leaving higher disposable income in their hands. From the perspective of the economy, the idea was to give a boost to aggregate demand and drive growth. Under the old regime...
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Off-budget liabilities return in Budget ’23
Unless PM Modi cracks the whip on reforms in food and fertiliser subsidy, such liabilities will haunt economy In Budget 2020-21, Finance Minister Nirmala Sitharaman candidly acknowledged the existence of the so-called off-budget liabilities and extra-budgetary resources (EBRs) and mentioned these in an annexure. EBRs are those financial liabilities or borrowings that are raised by public sector undertakings (PSUs) and other agencies of the government to fund latter’s schemes for which repayment of entire principal and interest is done from its Budget. If all obligations pertaining to the borrowings are met by the Union government then why does it not take these on its own balance sheet (BS) instead of riding piggyback on its agencies/PSUs? The reason is by not...
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Cap natural gas prices to control rising fertiliser subsidy
The government should continue with the extant formula for the pricing of natural gas as per November 2014 guidelines The pricing of domestic gas presents a mix of administrative control and market forces. A major reason why fertiliser subsidy zoomed to Rs 2.25 lakh crore in the revised estimate (RE) of 2022-23 against the budget estimate (BE) of Rs 1.05 lakh crore was the sharp increase in the price of natural gas, which accounts for over 80 percent of the production cost of urea. Almost all manufacturing of urea in India is based on natural gas. India consumes 59.5 billion cubic metres (bcm) of natural gas annually. Of this, nearly 54 percent, or 32.13 bcm, is produced domestically, and...
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Delink disinvestment from Budget exercise
The Union Government must set up a holding company where all of its shares in the Central Public Sector Undertakings (CPSUs) are placed In Budget for 2022-23, Finance Minister Nirmala Sitharaman had set a target of Rs 65,000 crore for proceeds of sale of Union government shareholding in central public sector undertakings (CPSUs). Against this, the revised estimate (RE) is placed at just about Rs 31,000 crore which works out to 47 per cent of the target. For 2023-24, Sitharaman has set a target of Rs 51,000 crore. During the last eight years since 2015-16 when this government started disinvestment with particular focus on ‘strategic’ sale (a sophisticated nomenclature for share sale that reduces its holding in the CPSU to...
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Budget 2023: Fertiliser, food subsidies can upset fiscal math
Higher cost of production due to the elevated cost of gas could increase the subsidy outgo on fertilisers during 2023-24 as would the extension of the free foodgrain scheme beyond December 2023 Fertiliser subsidy outgo during 2022-23 is estimated to be around Rs 2.25 lakh crore against a budget estimate (BE) of Rs 1.05 lakh crore. In the Budget for 2023-24, finance minister Nirmala Sitharaman informed that the government was set to achieve the fiscal deficit target of 6.4 percent of the gross domestic product (GDP) for the financial year 2022-23. This was despite substantial slippages in the expenditure on fertilisers and food subsidies. Fertiliser subsidy outgo during 2022-23 is estimated to be around Rs 2.25 lakh crore against a budget...
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Budget 2023 needs to play the hard ball on fertiliser subsidy
In a business-as-usual scenario, there won’t be any respite from a high fertiliser subsidy. Things could change if the Modi government plays the hard ball in Budget 2023 by going for measures such as urea decontrol and direct benefit transfer (DBT) or a significant increase in maximum retail price Fertiliser subsidy is payments made to manufacturers or importers to cover the excess of the cost of production/import and distribution. Propelled by the need to return to a fiscal consolidation path, the Union government is keen to rein in major subsidies. It wants to slash fertiliser subsidies from the likely actual of around Rs 2.50 lakh crore during the current fiscal year (FY) to Rs 1.40-1.50 lakh crore during FY2024. Going...
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