After LPG, Jaitley May Target Food Subsidy for Big Savings

Arun Jaitley faces the tough task of setting aside additional funds to boost capital spending without letting fiscal deficit targets out of sight in the forthcoming Budget.

Analysts say Mr Jaitley can mobilise additional resources for kick-starting capital spending by streamlining the food subsidy programme. For this, he needs to take a cue from the Oil Ministry, which has used the direct benefit transfer (DBT) mechanism to make massive savings on LPG subsidy scheme, analysts say.

As many as 10 crore LPG consumers have joined the ambitious DBT scheme of getting cash subsidy in bank accounts to buy market-priced cooking fuel.

According to Oil Minister Dharmendra Pradhan, the government is likely to save 10-15 per cent in LPG subsidy payout because of the DBT as it prevents diversions and black-marketing of the subsidised cooking gas. The government had allocated nearly Rs 40,000 crore for LPG subsidy in the previous Budget.

Research agency Crisil says DBT will eliminate costs associated with procuring, distributing and storing foodgrains, thereby leading to savings of as much as Rs. 25,000 crore in food subsidy expenditure. A family of five will get cash transfers of Rs 5,800 per year under the scheme, it added.

Under direct benefit transfer, foodgrains will not be sold at subsidised prices through public distribution system, preventing its diversion. The subsidy (difference between market price and subsidised price) will reach the intended beneficiaries through a direct cash transfer to their bank accounts.

Mr Jaitley in last year's budget had allocated Rs 115,000 crore for 2014-15 for national food security law and overall food subsidy. The tab for food subsidy has been significantly increasing in recent years and has almost doubled in five years.

A high-level committee under BJP MP Shanta Kumar has also suggested giving cash to beneficiaries. The eight-member committee was set up in August 2014 to recommend a complete overhaul of the way the Food Corporation of India functions.

The National Food Security Act entitles 67 per cent of India's population (75 per cent rural and 50 per cent urban) to 5 kg per person per month of subsidised foodgrains at Rs. 3 per kg for rice, Rs. 2 per kg for wheat and Re 1 per kg for millets.

The finance minister on numerous occasions has said though subsidies cannot be eliminated altogether but there is scope for its rationalization.

From April this year, all central government schemes involving cash transfer will have to follow the direct benefit transfer (DBT) route, the finance ministry said in a notification. Currently, the direct transfer mechanism is used transferring cash benefits to the beneficiaries of 35 central government schemes, including that for cooking gas. Analysts expect the food subsidy to be eventually brought under the direct benefit platform.  

(With Agency Inputs)