A jump in subsidy to contain rice price

As the government will hike subsidy expenditure from Tk23,830cr in this year to Tk28,045cr in the next fiscal year, subsidy spending is likely to increase by 17.69% due to the impending food shortage and supply of rice at low prices to the poor, according to the Finance Ministry. Around Tk4,545cr has been allocated for food subsidy. In the original budget for the current fiscal year, the allocation was Tk2,820cr, which was revised upwards to Tk3,721cr to accommodate a programme introduced last year to sell rice at Tk10 a kilogram to the poor. Fuel and power dominated the state’s subsidy policy in the last some years. Now, food and agriculture will get priority as the country is likely to see a food shortage because of the recent floods, a Finance Ministry official said. For the agricultural sector, the subsidy was cut by Tk3,000cr to Tk9,000cr in the revised budgetary outlay as fertiliser prices fell in the international market. Food related subsidies will rise to 20.10 % year-on-year to Tk1,215cr owing to an increase in  staple prices despite the rates remaining unchanged in the international market. The subsides will be required as the government plans to sell rice and wheat at lower prices in the upcoming fiscal year, as it is doing in the current one. Each kg rice and wheat sells under the government’s Open Market Sale programme at Tk15 and Tk17 respectively, while the government’s latest procurement price for rice is Tk 32 a kg. Exports and jute subsidies will remain the same as the current year’s amounts of Tk4,000cr and Tk500cr respectively. As Bangladesh Petroleum Corporation made lofty profits for several years as fuel prices in the international market were comparatively lower, no subsidies have been given to fuel sector. The state-owned organisation received a total of Tk42,000cr in subsidies in the last eight years. Petrobangla will likely get Tk2,500cr as cash credit to purchase gas from international oil companies (IOCs). The national oil company will use the credit to partially pay Tk5,500cr  of its dues to the National Board of Revenue. Petrobangla buys gas from the IOCs at Tk292 per 1,000 cubic metres, which include their income tax, but it sells the same volume of gas at Tk176, including taxes. Hence, the company pays a subsidy of Tk126 for every 1,000 cubic metres of gas. Also, the government last year started waiving taxes on gas at the time of import or purchase including 15% VAT. The power sector will get a subsidy of Tk5,500cr, which is the same as allocated in the FY2016-17. Before the budget announcement, Finance Minister AMA Muhith made his yearly rhetoric that the total subsidy would drop to a minimum level, but his assumption failed in the last two fiscal years as the subsidy outlay saw a rise.