CAG flays 247% hike in food subsidy arrears in 5 yrs

Pointing to a massive 247% increase in Centre's food subsidy arrears in the past five years, the CAG has flayed the practice of carrying over major subsidies to the next year saying it distorts subsidy costs and forces FCI to dip into small savings.

The CAG's reprimand comes just ahead of the interim Budget likely to be presented on February 1, during which Finance Minister Arun Jaitley is widely expected to resort to “carry over” practice of subsidies to prevent a breach in Budget deficit for 2018-19.

Subsequent governments at the Centre have been adopting the practice to carry over food subsidies to next year which increased to Rs 81,303 crore in 2016-17 from Rs 23,427 in 2011-12.

In order to cover financial requirements arising out of arrears, the Food Corporation of India resorts to buying bonds, taking short term loans to dip into national small savings funds. For example, in 2016-17, FCI got Rs 70,000 crore from small savings fund.

In 2016-17, the Centre had spent Rs 78,335 crore on food subsidy and carried over Rs 81,303 crore to the next year. In 2015-16, it spent Rs 1,12,000 on food subsidy and accumulated arrears of Rs 50,037 crore.

“Carryover of subsidy arrears increases the cost of subsidy and understates the annual subsidy expenditure and prevents transparent depiction of fiscal indicators for the relevant year,” the CAG said in its audit report on Compliance of the Fiscal Responsibility and Budget Management (FRBM) Act.

The Ministry of Finance, however, said that due to Budgetary constraints, it may not be possible to provide the entire amount of food subsidy in a particular year.

Similarly, for a carryover of fertilizer subsidies from Rs 26,417 crore in 2012-13 to Rs 39057 crore in 2016-17, the CAG said the move impacted the cash flow of companies. Though the government arranges loans from PSU banks to these companies and pays interest on such loans at Government Security (G-sec) rate, any interest over and above the G-Sec rate is borne by these companies.