Utility stores’ subsidy package cut by 56%

The government on Tuesday approved a drastically trimmed subsidy package of Rs10.8 billion for selling cheaper kitchen items at utility stores, cutting it by 56%, as it reduced subsidies and per-person purchase quota but increased prices.

The prices and subsidy will remain unchanged for only 400,000 targeted consumers but rates will shoot up by 63% for the rest of the consumers buying wheat flour, sugar, cooking oil, rice and pulses from the government stores, according to a decision of the Economic Coordination Committee (ECC) of the cabinet.

Out of the Rs10.8 billion cost, a subsidy of Rs6.2 billion will be given to the targeted consumers and Rs4.5 billion to the rest of the consumers till June next year.

The ECC approved a subsidy of Rs1.65 billion per month for the Utility Stores Corporation (USC) with effect from November 15, down from Rs3.8 billion. This suggests over 56% reduction in the monthly subsidy, or Rs2.1 billion.

Separately, the ECC allowed the continued provision of subsidised wheat flour to the rural areas of Khyber-Pakhtunkhwa (K-P) that would cost an additional Rs1.6 billion from November through June next year.

The government has saved Rs13.7 billion at the existing level of subsidies in the remaining period of current fiscal year.

Though the subsidy has been reduced by Rs13.7 billion for the poorest, at the same time the PML-N led coalition government has given a subsidy of Rs100 billion to the rich exporters owning private jets, by taking a highly expensive foreign loan. Yet, the exporters have failed to deliver.

The federal cabinet allowed in June to continue the subsidy on five essential items until a decision was taken by the ECC. The government allocated a subsidy of Rs12 billion in the budget but during the first four and a half months of FY23, Rs16.9 billion has already been spent on the PM’s package and supply of subsidised flour in K-P.

The ECC was presented two options – the first having fiscal implication of Rs10.8 billion and the second Rs12.4 billion. The ECC picked the subsidy that had a lower cost.

The government is currently providing wheat flour at Rs40 per kg through the utility stores by providing a subsidy of Rs42 per kg on a mix of local and imported wheat. It was decided that the existing rate would remain unchanged for the poorest 400,000 consumers.

However, for the majority of consumers, the price of wheat flour was increased by Rs25 per kg, or 63%. The new price of flour will be Rs65 per kg.

Sugar is being sold for Rs70 per kg at the utility stores with a subsidy of Rs21 and this price will remain unchanged for the protected poorest consumers. However, it was decided that the unprotected ones would pay Rs80 per kg, higher by Rs10, or 14%.

Similarly, cooking oil and ghee are being sold for Rs300 per kg with a subsidy of Rs114. For the unprotected consumers, the subsidy had been reduced by Rs89 per kg, which would increase ghee prices by 30%.

The ECC decided to keep per-family quota of the 400,000 consumers unchanged but it cut the wheat flour quota by half and sugar and ghee quota by 40% for the unprotected persons.

The quota of unprotected consumers is fixed on the basis of CNIC, according to the decision.

In other decisions, the ECC approved release of Rs1.3 billion for SSGC for gas supply to the closed Pakistan Steel Mills (PSM). Steel production at PSM has come to a halt since 2015.

However, 2 million cubic feet per day (mmcfd) of low-flame gas is being supplied to PSM primarily to preserve the coke oven batteries and refractory kilns with average monthly bill of Rs80 million.

The ECC allowed operations of Fatima Fertiliser and Agritech Limited plants on subsidised RLNG from October to December 2022 that would cost the national kitty roughly Rs16 billion in subsidy, which was higher than the budget allocation.

It had previously approved a subsidised RLNG price of Rs839 per mmbtu for the plants. The government picked up a subsidy of Rs33 billion under the head during the last financial year.

Published in The Express Tribune, November 16^th, 2022.

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