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January 28, 1999


Govt raises prices of wheat, rice, sugar, urea; Rs 50 billion additional revenue expected to prune fiscal deficit

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In a major pre-Budget exercise aimed at pruning fiscal deficit and subsidies, the government today increased the prices of wheat, rice and sugar distributed through the public distribution system by up to 30 per cent.

The government also hiked the gate price of urea by eleven per cent from Rs 3,600 per tonne to Rs 4,000 per tonne with immediate effect, Information and Broadcasting Minister and government spokesman Pramod Mahajan said in New Delhi after the Cabinet meeting.

A bag of urea, which costs around Rs 183, will now be available at control shop at more than Rs 203.

The strong dose of price rise in essential commodities and urea will fetch the government more than Rs 50 billion in a year.

Justifing the increase, Mahajan said that there had been no increase in the price of essential commodities in the past two years while procurement prices had gone up considerably, forcing the government to provide more subsidy on the PDS items.

In the wake of increase in procurement prices, the food subsidy over-shot the budget target of Rs 90 billion to Rs 105 billion.

The new wheat price at PDS outlets will be Rs 3.25 per kg against Rs 2.50 per kg for those below the poverty line or BPL.

For those above the poverty line, the wheat will cost Rs 6.50 per kg against the existing Rs 4.50.

For those in the BPL category, the issue price for rice will now be Rs 4.25 per kg, up from Rs 3.50 per kg. It will be Rs 9.05 instead of Rs 5.50 per kg for those above the poverty line.

The issue price of sugar has been increased by Rs 0.60 paise per kg to Rs 12. However, there is no increase in the price paid by the government to sugar mills.

The increase in prices of all essential commodities will be with immediate effect, Mahajan said.

The consumption of wheat and rice through public distribution system in a year is estimated around 20 million tonnes, out of which rice accounts for 12 million tonnes. The sugar consumption through public distribution is estimated around four million tonnes in a year.

According to a spokesman of the Fertilser Association of India, the gate price of urea, which was Rs 3,660 per tonne, increased to Rs 4,000 per tonne, thus reducing the subsidy on the fertiliser by around Rs 7 billion per year. The fertilser subsidy in the previous financial year was around Rs 74.26 billion and the government had made a provision of Rs 69.83 billion for the current financial year.

It may be recalled the Bharatiya Janata Party government in its first Budget last year, increased the urea prices by a rupee per kg. Later, under pressure from its allies, it reduced the price-increase by 50 paise per kilo. While replying to the finance bill debate, Finance Minister Yashwant Sinha further reduced the prices by another 50 paise, same as the 1998-99 pre-Budget levels.

India is providing heavy subsidy on urea and its consumption was estimated around 20 million tonnes now. Imports were estimated around 2.5 million tonnes.

The sharp increase in prices of wheat and rice will have an inflationary impact on essential commodities as open market prices of both commodities were ruling slightly higher than the above the poverty line prices.


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