While the Rs 60,000-crore (Rs 600 billion) agricultural loan waiver mooted in the 2008-09 Budget has grabbed the limelight, another striking, albeit disquieting, feature of the Budget has gone largely unnoticed. This is that the outgo on subsidies has burgeoned to a whopping Rs 71,431 crore (Rs 714.31 billion) for the new year.

The bulk of this dole, over Rs 62,000 crore (or 87 per cent), goes to food and fertiliser subsidies, with the food subsidy climbing to a record Rs 32,600 crore (Rs 326 billion), and the fertiliser subsidy also touching a new high of nearly Rs 31,000 crore (Rs 310 billion). Both numbers have inflated to two-and-half times their levels at the start of the decade.

Regardless of the size of the bill and its fiscal implications, the truth is that, in the present socio-political milieu, such subsidies cannot be done away with. Finance Minister P. Chidambaram chose to make this point clear by stating in his Budget speech that the government would continue to provide fertiliser to farmers at subsidised prices.

Taking this as a given, the question to ask would be how well these subsidies are serving their intended purpose. And this is where the logic of such liberal sops becomes suspect, despite the finance minister's initiatives and the promises of more change.

In the case of the food subsidy, it is well known -- and acknowledged by the government as well -- that a sizeable part of the highly subsidised foodgrains meant for the public distribution system (PDS) is diverted to unintended destinations. Worse still, even the grain actually distributed through PDS outlets does not necessarily go to the genuinely poor, as not all of them have ration cards.

This is despite the total number of the ration cards in circulation being far in excess of the estimated number of households characterised as below poverty line (BPL). So the finance minister's announcement is to be welcomed that a beginning is to be made in targeting supplies through smart cards, in Haryana and Chandigarh.

In the case of fertiliser, similarly, the mismanagement of the subsidy delivery has eroded the potential benefits that should have been got from such large expenditure. The government's failure to make timely and full reimbursement of the subsidy to the industry, which is a conduit for channelling it to the farmers, has affected the industry's ability to deliver.

Moreover, the budgeted outlay for the fertiliser subsidy falls short of the actual requirement by about Rs 10,000 crore (Rs 100 billion), signalling a continued liquidity problem for the industry. This apart, the distortions in the subsidy on urea vis-a-vis other fertilisers have resulted in the imbalanced use of nutrients, impairing soil health and contributing to both yield stagnation as well as deceleration in agricultural growth.

Though the finance minister has indicated in the Budget that the government will shift to a better-targeted, nutrient-based subsidy regime, it is as well to remember that a proposal was mooted in the Budget a year ago for paying the subsidy directly to farmers. Considering the extent of tax payers' money that is being handed out as subsidies, it is imperative that the government address these issues with a sense of urgency.