Finance ministry to seek Parliament approval for extra spending

The finance ministry has approved an additional ₹82,000 crore of fertilizer subsidy to be spent this fiscal, which will take the total fertilizer subsidy to ₹1.91 trillion, a 75% jump over the ₹1.09 trillion provided in the FY23 budget, said a person familiar with the development.

The Centre has already announced two extensions of its free foodgrain programme till December at the cost of nearly ₹1.26 trillion. The person cited above said the additional subsidy is being utilized now, and supplementary demands for grants will be presented.

An email sent to the finance ministry early on Saturday seeking comments for the story remained unanswered at the time of publishing.

Experts said that the government would be able to meet the additional spending thanks to revenue buoyancy. “The Union budget for FY23 had assumed an 11.1% growth in the nominal gross domestic product (GDP) to ₹258 trillion this fiscal. In our estimate, nominal GDP is likely to grow by 17-18% this fiscal, which could fetch an extra ₹4 trillion in revenue to the government. The extra subsidy requirement is less than that,” said D.K. Srivastava, chief policy adviser, EY India.

But spending more than initially planned amounts and changing the heads under which funds are utilized, which happens when there is saving under some schemes and extra spending requirement under some other schemes, need Parliamentary approval.

The surge in global commodity prices led to a spike in subsidy requirements. India is dependent on imports of potash, a key fertilizer. Also, the price of urea, another key fertilizer, is dependent on the cost of natural gas and its feedstock. Gas generally tracks the price of crude oil.

After the Russia-Ukraine war, energy prices have increased, impacting the cost of producing fertilizer and steel. To check disruption in supplies, fertilizer companies signed a three-year deal with Canada’s Canpotex in September for the supply of 15 million tonnes of potash a year.

The government, in two tranches, extended the free foodgrain scheme, Pradhan Mantri Garib Kalyan Ann Yojana, first in April till September and then till December. The idea is to protect vulnerable sections of society during the festive season.

One trend that gives relief to the policymakers is the buoyancy in tax collections, both in direct taxes and GST. Sending a strong signal about the central government’s fiscal health, the finance ministry last month lowered its borrowing target for FY23 by ₹10,000 crore to ₹14.21 trillion.

Gross direct tax receipts up to 8 October showed a 23.8% jump over a year ago to ₹8.98 trillion, while figures for September showed that GST revenue collection has been above the ₹1.4 trillion mark for seven months in a row.

The government has so far realized about 37% of its ₹65,000 crore disinvestment target, which has been sharply lowered from last year’s ₹1.75 trillion target, according to data available from the finance ministry.