Recurring gaps between Budget Estimates and actual subsidy outgo weaken fiscal credibility. Discuss with reference to major subsidies.

Fiscal credibility depends on how closely actual spending tracks the Budget Estimate (BE). The FY27 fertiliser subsidy shows the problem. It was budgeted at ₹1.71 lakh crore but may now top ₹3 lakh crore [1]. Food and fertiliser subsidies keep breaching their BEs. This is mainly a problem of how they are designed, not just bad luck.

Why the gaps recur

• Fixed price, floating cost: urea sells at ₹242 per 45 kg bag against an actual cost of about ₹2,200 [2]. So the entire LNG and urea price spike after the Iran war falls on the Budget [1].
• Import dependence: 26% of the urea subsidy goes towards imports [3].
• Optimistic assumptions: the FY27 BE was cut by over 8%. It assumed lower imports and balanced fertiliser use [1], but nothing was done to change the price signal.
• Weak need-assessment: the CAG found that the method for estimating fertiliser requirement was flawed [4].
• Food subsidy under-provisioning: the shortfall was met through NSSF loans to FCI. These stood at ₹2.54 lakh crore by end-2019-20 [5].

How credibility erodes

• Deficit targets slip: FY27 P&K outgo is about ₹1.04 lakh crore against a ₹54,000 crore BE [1]. This squeezes capital expenditure.
• Hidden liabilities: off-budget borrowing hid the true deficit until it was brought on-budget in 2021-22 [5].
• Diluted parliamentary control: supplementary grants under Article 115 become routine instead of exceptional.
• Early warnings ignored: over 70% of the BE had been spent by September, according to CGA data [1].
• Leakage incentive: a wider gap between subsidised price and cost increases diversion to non-farm uses [4].

The other side

• Absorbing a war-driven shock at Rabi sowing time protects small farmers and limits food inflation [1].
• Under NBS (2010), P&K subsidy is tied to nutrient content [6]. This gives some flexibility to adjust support.

Way forward

• Raise urea prices gradually and pay cultivators direct benefit transfers (DBT), as the Economic Survey 2025-26 proposed [7].
• Base BEs on forward commodity prices and keep a contingency buffer.
• Scale up nano urea to cut imports and nitrogen overuse [3].

Overshoots come from fixed prices, import exposure and under-provisioning. A buffer against shocks is still needed. Realistic BEs, transparent accounting and targeted DBT can protect farmers while restoring the fiscal discipline the FRBM framework intends.