Budget 2013 math is going out of the window already

By R Jagannthan

The first big numbers to go out of the window from P Chidambaram’s barely two-day-old budget are at hand: subsidies in both fertiliser and fuel.

In his budget, the Finance Minister had put out subsidy figures for fertiliser at Rs 65,974 crore for 2012-13 (the year just ending this month), and a similar amount (Rs 65,972 crore) for next year.

His ministry’s babus haven’t apparently been on talking terms with the fertiliser ministry. Yesterday, Minister of State for Fertilisers and Chemicals Srikant Jena told the Rajya Sabha that the actual requirement of funds is Rs 1,02,207.39 crore for 2012-13.

If over Rs 37,000 crore is the gap between actual subsidies required and the budget’s revised estimates, the question is this: will this amount go unpaid, and push the industry into losses, or is this amount going to be rolled over to 2013-14? In the latter case, the government will be left with just over Rs 28,500 crore for next year.

The only way the gap can be met is by either raising fertiliser prices steeply, or by undercompensating fertiliser companies. Raising prices means the food subsidy will go up, for farmers will demand higher support prices.

The second number that will probably collapse under the weight of global uncertainties is the fuel one. Soon after the budget, the rupee crashed, and is now nudging Rs 55 to the dollar.

Despite the two hikes in diesel, the subsidy for diesel has actually gone up to Rs 11.26 a litte (as on 1 March), according to the Petroleum Planning and Analysis Cell. Under-recoveries in April-December have been pegged at nearly Rs 125,000 crore, and in the remaining three months, they could rise to over Rs 1,65,000 crore, of which the government’s share will be Rs 100,000 crore.

As against this, the budget provides Rs 96,880 crore - a small miss - but next year’s subsidies may need upward revision when the FM has actually reduced it to Rs 65,000 crore.

This means either steeper hikes in diesel will follow the Rs 1.50 per litre hike in petrol yesterday.

The budget arithmetic is unravelling.

“The Indian economy is challenged”, the FM said in his budget speech. The budget-making process seems to be mathematically-challenged, too.