Lopsided subsidies?

Firdous Ashiq Awan, Special Assistant to the Prime Minister on Information and Broadcasting, while briefing the media on Cabinet decisions, revealed that 100 billion rupee subsidy would be extended to the agriculture sector though she did not provide any details as to how this sizeable amount would be disbursed. In the first week of July 2019, Jehangir Tareen, acknowledged as the architect of the five-year 309 billion rupee agriculture emergency programme, together with the Minister for National Food Security and Research stated at a press briefing on 2 July 2019 that the amount would become available from next fiscal year with the federal government contributing 85 billion rupees, provinces contributing 175 billion rupees (with Sindh still foot dragging on its participation in the programme) while the farmers would contribute 50 billion rupees. The target areas for spending would be as follows: increasing yields of wheat and sugarcane, though surprisingly and much to the chagrin of the textile sector, the programme did not include cotton as well as greater water availability for crops.

The budget for the current fiscal year presented three weeks before the announcement of the Agriculture Emergency Programme earmarked a total subsidy of 15.5 billion rupees for PASSCO inclusive of 8 billion rupees for wheat supply to Gilgit-Baltistan, 5 billion rupees for wheat reserve stock, 2 billion rupees under wheat operation and half a billion rupees as reimbursement on account of donation of wheat by the government. There was no subsidy earmarked for National Food Security and Research Division. Thus while total budgeted subsidies increased in the current year to 271.5 billion rupees, including the 230.3 billion rupees disbursed to Wapda and K-Electric in the revised estimates of last year, actual outlay as subsidy for the farm sector was not included in the budget documents. With respect to power sector subsidy, Awan claimed that 242 billion rupees had been released as subsidy to protect those consumers using up to 300 units of electricity in any month. It is unclear whether the figure cited by Awan, around 12 billion rupees higher than in the budget documents, was a revised estimate or whether it includes the entire period that the Khan administration has been in power.

Additionally, the first three months of the current year's consolidated federal and provincial budgetary operations indicate no subsidy releases to any sector including the power sector, which raises the obvious question: which expenditure item would be slashed and/or which revenue source would be tapped to pay for the 100 billion rupees earmarked as subsidies to the farm sector in the remaining six-and-a-half months of the current year. And what impact would this have on the projected budget deficit that would have inflationary implications?

Awan also stated that the cabinet expressed reservations at the proposed sukuk issuance and the Ministry of Finance was directed to revisit the summary before presenting it again. While she did not mention the details of why the cabinet refused to approve the summary yet a Business Recorder exclusive report revealed that the summary sought a carte blanche from the cabinet as it did not contain relevant facts, notably the exact size of issuance, tenor and rental rate which the summary stated would be determined by market response received at the time of issuance.

We are not opposed to subsidy to the farm sector given that the sector contributes 21.4 percent to the GDP. This may still be higher if we consider the contribution of agriculture to our agri-based industrial sector that is heavily reliant on farm output as an input (textiles) and employs 45 percent of the country's labour force. Another reason is the disturbing fact that food inflation in Pakistan today is prohibitively high that accounts for a rise in poverty levels and a rise in unemployment due to the tight monetary and fiscal policies of the government. However, we fear that a direct injection into the farm sector is unlikely to pay dividends unless the monetary and fiscal policies are also appropriately adjusted to inject productivity into the farm as well as industrial sectors.