India aims to cut spending on food and fertiliser subsidies to 3.7 trillion rupees ($44.6 billion) in the fiscal year from April, down 26% from this, to rein in a fiscal deficit that ballooned during the COVID-19 pandemic. Spending on fertiliser subsidies will likely fall to about Rs 1.4 lakh crore. That compares with nearly Rs 2.3 lakh crore this year.
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Key Highlights:
- Food and fertiliser subsidies alone account for about one-eighth of India’s total budgetary spending of ₹39.45 trillion this fiscal year, but reducing these subsidies could be politically sensitive given the impending elections.
- The government anticipates allocating roughly 2.3 trillion for food subsidies in the upcoming fiscal year as opposed to 2.7 trillion for the year that has just ended on March 31.
- The amount spent on fertiliser subsidies will probably decrease to roughly 1.4 trillion in contrasts to 2.3 trillion this year.
What is the Reason Behind this Expectation:
- The current fiscal year’s target fiscal deficit for the government is 6.4% of GDP.
- It is far above the average of 4% to 4.5% over the past decade, excluding the pandemic years when spending surged and the ratio peaked at 9.3%.
- In 2023–2024, the administration wants to reduce the ratio by at least half a percentage point.
- In a year with several State elections and general elections in 2024, this will effectively cut in half the free rations provided to the poor.
- The subsidy numbers will be announced on February 1, when Finance Minister presents the 2023/24 budget in Parliament.
What is Fiscal Deficit, A Key Concern:
- Fiscal Deficit is the difference between total revenue and total expenditure of the government.
- The fiscal balance of a country is calculated by its government’s revenue followed by its expenditure in the provided financial year, the situation where the government expenses increase more than the revenue in a year is a fiscal deficit.
- Fiscal deficits increase people’s purchasing power, which stimulates a stagnant economy.
- Long-term deficits, however, may also have a detrimental effect on the stability and growth of the economy.
- Ratings for the nation may also be impacted if the fiscal deficit is large.