SearchTodayMainsPrelimsSubjectCSAT

Direct Fertiliser Subsidy Transfer: An Essential Discussion

Expenditure Secretary V Vualnam highlights fiscal prudence and agricultural support through IT advancements in fertiliser distribution.
•5 mins read
FY27 Budget focuses on fiscal prudence, quality expenditure, and targeted support
Not Started

1. Budget Philosophy: Fiscal Prudence and Quality Expenditure

The Union Budget 2026–27 is anchored in the principle of fiscal prudence, reflecting the government’s emphasis on maintaining macroeconomic stability amid uncertain global conditions. Fiscal discipline is presented not as an end in itself, but as a foundation for economic resilience.

Alongside prudence, the quality of expenditure has emerged as a central concern. The Budget prioritises capital expenditure, recognising its role in crowding in private investment, enhancing productivity, and supporting medium-term growth.

A third pillar of the Budget philosophy is targeted support for vulnerable and priority segments of society. This ensures that fiscal consolidation does not come at the cost of social protection or developmental equity.

If fiscal prudence and expenditure quality are not simultaneously pursued, public spending risks becoming inefficient, weakening both growth prospects and fiscal sustainability.

Macroeconomic stability, efficient capital spending, and social support together define sustainable public finance. Ignoring any one pillar can undermine the credibility and effectiveness of fiscal policy.

“Macroeconomic stability is a key source of strength in uncertain global conditions.” — V. Vualnam, Expenditure Secretary

2. Underutilisation of Budget Allocations and Expenditure Management

Several departments were unable to fully utilise their FY26 allocations, yet received higher allocations in FY27. This reflects an active expenditure management approach rather than mechanical budgeting.

The government undertakes a detailed review of Budget provisions in October–November each year. In some cases, such as the Jal Jeevan Mission, allocations were not fully spent due to internal reviews to reassess implementation readiness.

This approach ensures that funds flow only to activities that are actually undertaken, improving allocative efficiency. FY27 provisions have been made after understanding the specific reasons for underutilisation in FY26.

If underutilisation is ignored and allocations continue without scrutiny, it can lead to idle funds, weak outcomes, and erosion of expenditure credibility.

Expenditure reviews link budgeting with implementation capacity. Without such scrutiny, higher allocations do not necessarily translate into better outcomes.

Illustration:

  • Jal Jeevan Mission allocation in FY26: ₹67,000 crore (not fully utilised)

3. Fertiliser Subsidy Rationalisation and Use of Technology

The Budget targets a reduction in fertiliser subsidy in FY27 while reaffirming the government’s commitment to ensure adequate fertiliser availability for farmers. The emphasis is on efficiency rather than withdrawal of support.

The Agri Stack initiative is expected to play a key role by leveraging digital information systems. Better targeting can help farmers access the precise quantity of fertiliser required, reducing crowding at outlets and minimising waste.

There is also openness to reforming the subsidy delivery mechanism, including the possibility of directly subsidising fertiliser consumers instead of producers, though no final decision has been taken.

If fertiliser subsidies are not rationalised, fiscal pressures will persist and distortions in fertiliser use may continue, affecting both productivity and environmental outcomes.

Technology-enabled targeting offers a pathway to balance fiscal prudence with farmer welfare. Ignoring this opportunity risks perpetuating inefficiency in agricultural support.

“By using the power of information technology, farmers will be able to choose and use exactly the quantity of fertiliser they need.” — V. Vualnam

4. Finance Commission Recommendations and Fiscal Federalism

The Sixteenth Finance Commission’s recommendation to discontinue post-devolution revenue deficit grants has implications for fiscally weaker states. The Centre’s position is that, after tax devolution, states are expected to mobilise their own revenues.

The government believes that with improved devolution arrangements and state-level efforts, managing revenue balances should be feasible. This reflects a shift towards greater fiscal responsibility at the sub-national level.

On fiscal deficit norms, the Commission recommended limits of 3% of GSDP for states and 3.5% of GDP for the Centre by 2030–31. While the Centre has accepted the former, it is examining the latter in the context of debt management.

If rigid deficit targets constrain the Centre’s ability to respond to national requirements, macroeconomic management could be weakened during periods of stress.

Fiscal federalism requires balancing discipline with flexibility. Overly rigid norms may limit effective macroeconomic response, while laxity can undermine sustainability.

Key norms:

  • States’ fiscal deficit limit: 3% of GSDP
  • Recommended Centre limit: 3.5% of GDP by 2030–31

5. Scheme Rationalisation and Evaluation Process

Expectations that several schemes would be discontinued at the end of the Fifteenth Finance Commission period have not yet materialised. The government attributes this to ongoing evaluations by individual ministries.

Based on evaluation outcomes, schemes may be merged, restructured, or closed. New schemes are expected to be robustly designed, with clear objectives and implementation frameworks.

Decisions are expected to be finalised by February–April, after which continuing schemes will undergo appraisal by the Expenditure Finance Committee (EFC).

If schemes are continued without rigorous evaluation, expenditure fragmentation and overlap may persist, reducing policy effectiveness.

Systematic evaluation ensures that public spending remains outcome-oriented. Ignoring this step risks perpetuating ineffective or redundant schemes.

6. Special Assistance to States for Capital Investment (SASCI)

Allocations for Special Assistance to States for Capital Investment (SASCI) loans have increased sharply in FY27, despite about ₹43,000 crore remaining unspent in FY26. The increase reflects confidence in the scheme’s design rather than utilisation issues.

SASCI provides flexibility to states while ensuring that spending aligns with desirable fiscal parameters. A key feature is its reform-linked component, which conditions disbursement on the adoption of specified reforms.

States are given time until November–December to report reforms undertaken. Disbursements occur after verification, explaining the apparent lag in utilisation.

Reform-linked capital assistance balances autonomy with accountability. Ignoring design features may lead to misinterpretation of utilisation data.

Key figure:

  • Unspent SASCI allocation in FY26: ₹43,000 crore

Conclusion

The FY27 Budget reflects an evolution towards disciplined, outcome-oriented public finance. By emphasising fiscal prudence, quality expenditure, technological reform, and calibrated federal flexibility, the government aims to strengthen macroeconomic stability while supporting growth and welfare. Sustained success will depend on effective implementation, credible evaluations, and adaptive fiscal frameworks aligned with India’s development priorities.

Quick Q&A

Everything you need to know

The Union Budget 2026–27 is anchored on the principle of fiscal prudence, quality expenditure, and targeted support for specific segments of society.

  • Fiscal prudence: The government has emphasized macroeconomic stability, ensuring that budgetary allocations align with realistic revenue projections and sustainable debt management practices. This approach is particularly crucial in uncertain global economic conditions marked by inflationary pressures and volatility in financial markets.
  • Quality of expenditure: Capital expenditure has been prioritized to enhance infrastructure, investment, and long-term growth prospects. By focusing on the efficiency and impact of spending rather than just the magnitude, the government aims to improve developmental outcomes.
  • Targeted support: The Budget provides tailored assistance to sectors and populations that require intervention, ensuring inclusive growth. Examples include schemes linked to agriculture, social welfare, and state capital investments.
Strategic significance: By combining fiscal prudence with targeted quality spending, the government seeks to balance growth, stability, and equity, providing a roadmap for sustainable economic development over FY27.

Underutilization of budgetary allocations in FY26 can be attributed to administrative reviews, procedural delays, and careful scrutiny of project implementation.

  • Project-specific reviews: Ministries like the Department of Water Resources conducted intensive reviews of schemes such as the Jal Jeevan Mission to ensure that allocations were directed only to activities that were actively being implemented. This step, although delaying fund utilization, aimed to improve accountability and efficiency.
  • Understanding bottlenecks: The government’s appraisal revealed structural or operational bottlenecks that prevented full expenditure. These included delays in tendering, procurement, or evaluation of state-level proposals.
  • FY27 corrective measures: Based on the lessons from FY26, allocations for FY27 have been made with a clear understanding of prior underutilization, ensuring that departments receive funds they are capable of absorbing effectively. This approach reduces wastage and ensures alignment with actual project execution capacity.
Implications: This methodical approach strengthens financial discipline and ensures that public resources translate into tangible developmental outcomes.

The Budget aims to optimize fertilizer subsidy through targeted delivery mechanisms, improved technology, and better resource management.

  • Use of Agri Stack: The Ministry of Agriculture’s Agri Stack initiative enables data-driven distribution, allowing farmers to access exactly the quantity of fertilizer they need. This reduces wastage, crowding at distribution points, and leakages in subsidy delivery.
  • Direct subsidy to consumers: While the government continues to provide subsidies to ensure affordability, mechanisms for direct benefit transfers (DBT) are being considered. This approach could directly credit farmers’ accounts, enhancing transparency and efficiency.
  • Balanced implementation: The commitment to supply fertilizers remains intact. The fiscal strategy is not to cut allocations abruptly but to ensure that subsidy expenditure is efficient and sustainable over the medium term, supporting agricultural productivity without straining the fiscal balance.
Outcome: By leveraging technology and better targeting, the government intends to maintain farmers’ access to inputs while gradually rationalizing subsidy outlays.

The 16th Finance Commission recommended phasing out post-devolution revenue deficit grants, expecting states to mobilize their own revenues.

  • Impact on fiscal autonomy: States now have greater responsibility to generate tax and non-tax revenues, incentivizing better revenue collection and expenditure prioritization.
  • Challenges for weaker states: Fiscally weaker states may find it challenging to bridge gaps initially, potentially affecting developmental spending. However, structured support through targeted schemes like SASCI provides flexibility for capital investments within fiscally prudent limits.
  • Long-term perspective: The shift encourages fiscal discipline and sustainability. States are now required to integrate debt and deficit management into regular planning processes, aligning with best practices in intergovernmental fiscal management.
Conclusion: While the transition poses short-term challenges, it fosters responsible fiscal management, promoting both accountability and efficiency at the state level.

The Special Assistance to States for Capital Investment (SASCI) loans illustrate the link between allocations and performance.

  • Enhanced allocations: Even though about ₹43,000 crore remained unspent in FY26, allocations for FY27 were increased to provide states with flexibility while adhering to fiscal discipline.
  • Reforms-linked component: States are required to submit evidence of undertaken reforms by November–December. Only after verification are funds disbursed, ensuring that financial support incentivizes policy improvements.
  • Systematic evaluation: This design encourages structured planning, timely reporting, and accountability. By tying disbursement to measurable reform outcomes, the government ensures that public resources are effectively deployed.
Implication: The SASCI example demonstrates how budgetary allocations can be used strategically to promote both fiscal responsibility and developmental outcomes.

Quality of expenditure ensures that public funds achieve maximum developmental impact rather than merely being disbursed in large amounts.

  • Efficient utilization: By prioritizing high-impact capital expenditure, the government ensures that projects with the most socio-economic benefit are implemented first, reducing unproductive spending.
  • Alignment with strategic goals: Quality expenditure targets sectors critical for growth, such as infrastructure, social services, and technology-enabled governance, ensuring that budget allocations contribute to long-term objectives.
  • Lessons from FY26: Previous underutilization highlighted that higher allocations do not automatically translate into outcomes. Quality-focused allocations ensure that resources are deployed where departments have capacity and readiness to execute, improving accountability and governance.
Conclusion: Emphasizing quality over quantity enhances the effectiveness, transparency, and sustainability of public finance management.

The FY27 Budget balances fiscal consolidation with growth-oriented expenditure through calibrated debt management, strategic capital spending, and selective support to critical sectors.

  • Debt-to-GDP focus: While the fiscal deficit remains a key metric, the government prioritizes the debt-to-GDP ratio as a measure of fiscal health. This allows flexibility to fund capital-intensive projects without compromising macroeconomic stability.
  • Targeted capital expenditure: Emphasis on infrastructure, power, and social sectors ensures that spending generates multiplier effects, stimulating economic growth while maintaining fiscal prudence.
  • Support for priority sectors: Programs like fertilizer subsidy rationalization, reforms-linked state support, and strategic social investments ensure that growth is inclusive and that resources reach the segments that drive productivity and welfare.
Outcome: By combining careful fiscal management with strategic allocation of resources, the Budget aims to sustain growth momentum without jeopardizing financial stability.

Attribution

Original content sources and authors

RC
RUCHIKA CHITRAVANSHI
BS
Business Standard
Sign in to track your reading progress

Comments (0)

Please sign in to comment

No comments yet. Be the first to comment!