Govt misses subsidy targets

Absence of uniform mechanism hinders distribution of agri-subsidy

ISLAMABAD:

The government has missed all targets relating to disbursement of agricultural subsidy under the prime minister’s package due to absence of a uniform mechanism of scratch card.

According to the Ministry of National Food Security and Research, the cabinet, in its meeting held on July 28, 2020, ratified a decision of the Economic Coordination Committee (ECC) for a Rs50 billion fiscal package for the agriculture sector announced by the prime minister in the wake of Covid-19 outbreak for the current financial year.

The government had allocated Rs32.5 billion in fertiliser subsidy. Subsidy disbursement by provinces was approved for Kharif crop (Apr-Sept 2020) through a uniform mechanism - scratch card. However, due to the absence of the mechanism, no disbursement was made for the Kharif crop in 2020.

Provinces suggested a subsidy for the Rabi crop (Oct-Mar 2020-21) and continuing it for the Kharif crop (Apr-Sept 2021) as well.

Subsequently, a package for the Rabi crop was approved based on a ratio of 70:30 for the centre and provinces with the federal share at Rs5.4 billion and disbursement through the existing mechanism.

An amount of Rs1.023 billion was transferred to governments of Punjab and Khyber-Pakhtunkhwa (K-P) under the Rabi package, whereas no request was received from Sindh and Balochistan.

Subsidy disbursement by Punjab and Sindh was approved for the 2021 Kharif crop covering around 80% of cotton crop area at Rs1,200 per acre with 100% share of the federal government through a uniform mechanism.

An amount of Rs0.3 billion was transferred to Punjab and no fund request was received from Sindh. Total allocation was Rs6 billion under the head.

Subsidy disbursement by Punjab and Sindh for two million acres was approved during cotton sowing in 2021 through a uniform mechanism - scratch card.

Mark-up subsidy was approved for disbursement through Zarai Taraqiati Bank Limited (ZTBL) at 10% for all loans for 12.5 acres of land and the estimated utilisation was Rs6.7 billion up to June 2021. Total mark-up subsidy was Rs8 billion.

Sales tax subsidy was approved through book and tax adjustment by the State Bank of Pakistan (SBP) and the Federal Board of Revenue (FBR) and the same is in process. Total allocation was Rs1.5 billion.

The Ministry of National Food Security and Research said that due to the condition of uniform mechanism, the provinces showed little interest in capitalising on the opportunity.

Subsidy for Kharif 2021

It was directed during a presentation to the prime minister on February 8, 2021 that a strategy for the transfer of subsidy funds to provinces on the basis of targeted cultivated area during Kharif 2021 and disbursement to farmers as per their existing mechanism may be worked out.

As the Kharif season 2021 is approaching, a reorientation of the fiscal package for fertiliser and cotton (white fly and seed) is required for timely and effective relief to farmers.

In view of this, the food ministry had proposed subsidy disbursement in the Kharif season 2021 through provinces by using their existing mechanisms on a ratio of 75:25 for fertiliser consumption in cotton cultivation and for DAP consumption in rice plantations at Rs1,500 per acre to cover 70% of the targeted cultivated areas and 100% share of the federal government for cottonseed at Rs1,200 per acre to cover 66% of the targeted cultivated area and white fly at Rs1,200 per acre or subsidy on fertilisers would be Rs10.216 billion and subsidy on cottonseed and white fly would be Rs8.942 billion.

The Ministry of National Food Security and Research said that the federal government would communicate about availability of funds for provinces and fund transfer would be conditional on an undertaking from the provincial government concerned, ensuring release of 20% provincial share in case of fertiliser subsidy.

The federal government would release funds to provinces on the receipt of consent as tied grant during the current financial year.

A fund utilisation certificate will be furnished by the provincial governments on the specimen enclosed and in case of non-utilisation of federal funds, the same amount would be adjusted by the Finance Division in the NFC fund pool.

The mark-up subsidy at 10% on ZTBL loans for up to 12.5 acres of land, on the basis of estimates provided by ZTBL, will be transferred to the bank for disbursement.

The food ministry does not have any capacity for the verification of loans, therefore, ZTBL would submit a verification certificate, indicating the authenticity of loans and the bank shall be responsible for the audit of subsidy funds by audit authorities.

Sales tax subsidy on locally manufactured tractors at 5% needs to be adjusted through the SBP and FBR. The ministry, in this case as well, does not have the capacity to verify claims of manufacturers and the process needs to be completed within the FBR including the simplification of procedures.

It proposed utilisation of the remaining amount of Rs16.94 billion would be furnished for the FY22 budget.

A subsidy for the Rabi package amounting to Rs5.4 billion was already approved and a subsidy of Rs10.22 billion on fertilisers was proposed for the Kharif season 2021, which would be transferred to provinces.

An amount of Rs0.3 billion has already been transferred to Punjab and subsidy of Rs4.60 billion on cotton during the coming season for covering 70% of the area will be transferred to provinces.

It also proposed Rs4.34 billion for subsidy on cottonseed during the coming season for 66% area coverage, which would be transferred to provinces.

Published in The Express Tribune, February 24^th, 2021.

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