India needs to consider converting food and fertilizer subsidies into cash transfers amid the burgeoning bill, Montek Singh Ahluwalia, the former deputy chairman of the erstwhile planning commission said.
“I think we should put on the agenda that are we going to continue a food subsidy that extends to 66 percent of the population at a time that we are targeting to become a middle-income country?” Ahluwalia told Moneycontrol in an interview.
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Rather, it makes more sense to increase the food subsidy for, let’s say, the bottom 40 percent and get rid of the food subsidy for the others, Ahluwalia, who was one of the key people behind the 1991 reforms which ushered in economic opening and reforms in India, said.
Replacing subsidies with cash transfers would allow the recipients to choose what they seek to spend on.
Ahluwalia does not expect the finance minister to announce any changes on the “highly controversial” issues of food and fertilizer subsidy in the budget but wants a debate to be initiated on the issues.
“This is a huge change and I can assure you that the moment somebody suggests it, there will be hundreds of civil society organisations that will object (but) you need that debate. This is a good time to start it.”
A debate is also needed on whether the fertilizer subsidy should be converted into a cash grant for farmers, Ahluwalia said.
Food and fertilizer subsidies have spiked this financial year as the government provided free foodgrains and amid the spike in fertilizer costs due to the Russia-Ukraine war.
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India’s central government last week decided to end the Covid-era free food programme after December 31, under which it had been offering an additional 5 kg of food grains to around 813 million beneficiaries free of cost since April 2020. This allocation was over the highly subsidised food grains citizens can purchase under the National Food Security Act.
The government also decided to make its existing National Food Security Act programme free of cost for one year, until December 2023. Brokerages expect the fiscal impact of these measures to be positive.
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