Budget 2023: Do lower subsidies form Sitharaman’s magic wand to make everyone happy?

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Finance Minister Nirmala Sitharaman is winning accolades for delivering a Budget that has brought some cheer for the middle class and for small businesses. The Budget revenue projections, interestingly, stayed largely conservative.

Sitharaman expects to meet the fiscal deficit target for the current financial year and aims to lower the budget deficit by a wide 50 basis points next fiscal. She has also promised to stick to her fiscal consolidation plan.

Deft expenditure management, capping leakages on the indirect and direct tax fronts will of course help cap the deficit.

But the big-ticket items that seem to be coming to the rescue of the Budget makers are the major subsidies, which are projected to fall 28 percent in the next fiscal year compared with the revised estimates of this fiscal year.

The government’s outgo on major subsidies had spiked over the last couple of years as the pandemic upended best laid plans of the government, stretching the fiscal deficit to record highs. In 2022, estimates were again hurt by Russia’s invasion of Ukraine, which boosted energy, fertiliser and food costs.

While presenting the Budget for 2023-24, the finance minister reiterated her target to lower the fiscal deficit to below 4.5 percent of the GDP by FY26, something that requires it to engineer sharp reductions in the budget gap.

To be sure, Sitharaman had set the stage for reducing the subsidies, particularly the food subsidy by withdrawing the pandemic-era free foodgrain scheme.

The Centre’s food subsidy bill had spiked in the wake of the Covid-19 pandemic as the government loosened its purse strings to help the economically weaker sections with free foodgrains, ensuring free distribution of foodgrains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) for 28 months until December 2022.

This scheme offered an additional 5 kg of foodgrain to around 81.3 crore beneficiaries free of cost, over and above the allocation of highly subsidised food grains that citizens are eligible to purchase under the National Food Security Act (NFSA).

On December 23, the Cabinet decided to provide free foodgrains to about 81.35 crore beneficiaries under the NFSA for one year from January 1, 2023. Simultaneously, it ended the PMGKAY.

Moreover, falling energy costs are also projected to lower the fertiliser costs, and the government has been promoting use of its Bharat brand of fertilser under the One Nation, One Fertiliser plan.

India is one of the largest importers of fertiliser. It needs the commodity to boost the yield of its vast farm sector which makes up about 15 percent of its economic output.