Paswan gives UPA another 60,000-cr headache

If you thought Rs 60,000-crore farm loan waiver is the only spending that will dent PC's fiscal prudence, think again.

If you thought the Rs 60,000-crore farm loan waiver is the only spending that will dent Finance Minister P Chidambaram’s fiscal prudence, think again. The Union Fertiliser Ministry has demanded an extra Rs 60,000 crore for fertilizer subsidy and unlike the loan waiver that’s spread over three years, the subsidy has to be provided during the current fiscal.

The Fertiliser Ministry has said that the Rs 30,986 crore provided in the 2008-09 Budget was inadequate considering the estimated consumption during Kharif 2008 and Rabi 2008-09 (see chart) and the spurt in international prices of fertilizers.

Coupled with an estimated 10% rise in domestic demand during 2008-09, the continuing price increase would mean a subsidy requirement of Rs 89,947 crore based on February prices, it claimed.

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The issue is now being resolved by the Prime Minister’s Office under the chairmanship of Principal Secretary to PM. Last Friday, he asked the Fertiliser Ministry to verify its estimates considering the Finance Ministry’s objection that more emphasis was being placed on imports instead of maximizing domestic output, and projections — of demand and global prices — needed to be rechecked.

If approved, the extra spending will raise the fiscal deficit by one percent over and above the Budget target of 2.5% of the Gross Domestic Product. In January, ahead of the Budget announcement, Fertiliser Minister Ram Vilas Paswan had requested for a “minimum budgetary allocation of Rs 50,000 crore” with Rs 10,650 crore more released through supplementary grants. He also wrote to Prime Minister Manmohan Singh seeking his intervention as the “absence of adequate budgetary provision will send a wrong signal to the fertilizer industry and might adversely affect production/import of fertilizers and consequently, the availability of fertilizers during 2008-09”.

With the Budget not heeding to his demand, Paswan now wants the subsidy to be “substantially enhanced” with a “clear indication” to the industry that the balance monies would be met as per requirement, in cash, through supplementary budgets in July and December 2008 and March 2009.

His Ministry claims that the budgetary provision will take care of only 34.45% of the subsidy. “The position is more acute in respect of potassium and phosphates where it would be less than 15%. The result would be that available funds, at least for P & K fertilizers, would be exhausted well before the first supplementary in July 2008,” it said.