Economic Survey 2021-22: Money Spent On Agriculture R&D Yields Much Better Returns Than Subsidy

As per a recent report in Reuters, the Central government is likely to set aside about Rs 3 lakh crore or $40 billion on food and fertiliser subsidies in 2022-23 budget. Such a huge outlay on two items created a furore on the social media. It’s another matter that the reasons for the increase - Covid-19 and the government’s transparency - have been ignored in the outrage fest. Now, the Economic Survey 2021-22 tabled in the Parliament today (31 January) has put the subsidy numbers in proper context.

It states that during April-November 2021 period, the expenditure on major subsidies (food, fertiliser and petroleum) stood at Rs 2.31 lakh crore, slightly over 70 per cent of the budgeted expenditure (BE). Food subsidy is the biggest component with Rs 1.64 lakh crore spent during the first eight months of 2021-22.

In previous fiscal year, the expenditure on food and fertilisers was over Rs 5.5 lakh crore with food subsidy alone accounting for a 400 per cent increase from 2019-20 fiscal year. This steep rise in the bill was majorly due to the Pradhan Mantri Garib Kalyan Ann Yojana which was launched as part of India’s COVID-19 response. The second reason for higher outlay was the pre-payment of around Rs 1.5 lakh crore of outstanding food subsidy related loans of the Food Corporation of India which was shown under expenditure for the first time in the 2021-22 budget as a move towards improving fiscal transparency.

As Swarajya editorial director R Jagannathan wrote last year, ‘This is a fairly honest budget, in that the fiscal deficit numbers do not look dodgy, where actual government borrowings are hidden in the books of government-owned companies like Food Corporation of India. Perhaps, the Finance Minister decided to make a virtue of necessity by using the extraordinary situation of the pandemic to bring back all the extra-budgetary borrowings of the past into the budget math.’

This is not to say that the subsidies are not a problem. They are. The difference between the per quintal economic cost and the per quintal Central Issue Price gives the quantum of per quintal food subsidy. ‘The economic cost of wheat has increased from Rs 1908.32 per quintal in 2013-14 to Rs 2993.80 per quintal in 2021-22. Similarly, the economic cost of rice has increased from Rs 2615.51 per quintal in 2013-14 to Rs 4293.79 per quintal in 2021-22,’ the Survey notes.

It also makes a case for spending more on research and development. Every rupee spent on agricultural research and development, yields much better returns (11.2), compared to returns on every rupee spent on fertiliser subsidy (0.88), power subsidy (0.79), education (0.97) or on roads (1.10), the Survey says.

‘Increasing R&D spending on agriculture is, therefore, not only a vital necessity for ensuring food security, but also important from the socio-economic point of view,” it adds.