Stand-in finance minister Pranab Mukherjee claims that the government is now in a position to pare down subsidy bills, thanks to lower global prices for fertiliser inputs as well as oil. But this will require exceptional fiscal prudence, as the subsidy bills for 2008-09 have overshot the budgeted levels by a wide margin.

For example, the centre's fertiliser subsidy bill for the current fiscal has overshot budgeted levels by Rs65,000 crore, or 80 per cent, which sets a new record for the country.

For 2008-09, the government had originally provided for a sum of Rs30,986.36 crore as subsidy payable to fertiliser companies in exchange for their selling nutrients to farmers at prices below the production or import costs (after factoring in a notional return over costs).

The revised estimates, however, show the total payment at Rs75,848.75 crore. The major portion of this is against sale of decontrolled fertilisers (Rs48,351.10 crore).

This includes the technically off-budget 'special securities' of Rs20,000 crore issued to fertiliser companies. These bonds – Rs17,000 crore against decontrolled fertilisers and Rs3,000 crore towards indigenous urea – do not involve any explicit cash outgo. The companies receiving the bonds can sell them to banks to meet their liquidity requirements.

Overall, the revised estimates for 2008-09 show the government pegging the total outflow on various subsidies at Rs129,243 crore, nearly doubling from the actual payout of Rs70,926 crore in 2007-08.

In its interim budget proposals, the government has expressed a desire to contain the mounting subsidy bill to Rs100,932 crore. In the 2009-10 estimates, fertiliser, food and petroleum will account for Rs95,579 crore. This is lower than the revised estimates of Rs122,352 crore for 2008-09. But expenditure under interest subsidies and other subvention is estimated at Rs5,353 crore, taking the total budgeted subsidy to almost Rs1,100 crore.

As usual, fertilisers will continue to eat the lion's share of the subsidies. In 2009-10 too, the largest chunk of Rs49,980 crore has been earmarked for the important farm input.

The government has squeezed the allocation to the fertiliser sector by 34 per cent at Rs50,200 crore for the next fiscal by slashing the non-plan spend substantially. The revised food subsidy has been set at Rs42,489 crore, an upwards revision from the budgeted Rs32,667 crore for 2008-09.

The estimate for petroleum has been marginally raised to Rs3,109 crore in 2009-10 from Rs2,876 crore budgeted in 2008-09.

Under the fertiliser subsidy, the government would provide Rs8,580.25 crore for indigenous urea-based fertilisers, Rs7,800 crore for imported urea-based fertilisers and Rs33,600 crore for the sale of decontrolled fertilisers (mainly phosphatic and potassic based), with a direct concession to farmers.

The petroleum sector has been allocated Rs3,109 crore in 2009-10, with the ministry of petroleum expecting average crude oil prices at $70 a barrel during the next fiscal.

Food subsidies have also shot up as the UPA government has not raised the central issue prices during its term, despite sharp hikes in the minimum support prices of wheat and paddy, and record procurement last year.