The government’s food subsidy expenses in the current fiscal are likely to cross `2.76 trillion, up 34% from the outlay made at the beginning of the year, according to an assessment by the food ministry. Sources told FE that the ministry is likely to ask for around `2 trillion under the food subsidy budget for FY24.
The food subsidy expenses in the last fiscal were `2.86 trillion (revised estimate).
“Lower wheat procurement and depletion of grain stocks because of implementation of the free ration scheme — Pradhan Mantri Garib Kalayan Anna Yojana (PMGKAY) — has contributed to lower food subsidy expenses in the current year compared to the previous year,” an official said.
The ministry’s assessment of subsidy expenses for the current fiscal is on the basis of presumption that the PMGKAY would not be extended beyond December 31, 2022.
The Food Corporation of India (FCI) is expected to incur expenses of `2.06 trillion in the current fiscal, while the rest of the expenses would be by state agencies those who follow a decentralised procurement system. Of course, the entire subsidy bill is borne by the Centre.
The finance ministry had made a record provision of `5.4 trillion in 2020-21, of which `3.4 trillion was towards settling loans availed by the FCI from the National Small Savings Fund. The government had settled the loans of the FCI and brought all food subsidy expenses into the Budget in the year, ending the practice of off-budget financing of a part of the subsidy.
According to food ministry officials, the government’s total expenses under the free ration scheme launched in 2020 in the midst of the first wave of the pandemic have already touched `3 trillion.
The government is yet to decide on extending the free ration scheme beyond December 2022. The PMGKAY was launched in April 2020 to provide free 5 kg foodgrain per person per month to more than 8,000 million beneficiaries covered under the National Food Security Act (NFSA), to reduce the hardships of people during the Covid pandemic.
The estimated economic cost of foodgrain procurement by the FCI, which includes expenses such as Minimum Support Price payment to farmers, procurement, acquisition and distribution costs, etc for rice and wheat, are `3,670.04 and `2,588.70 per quintal, respectively, in 2022-23.
The government distributes rice and wheat to beneficiaries under NFSA at `3 and `2 per kg, respectively also referred to as central issue price.
The Commission for Agricultural Costs and Prices (CACP), in its report titled ‘Price policy for rabi crops (2023-24)’, stated “the food subsidy has increased significantly during the 2013-14 to 2020-21 due to rising difference between economic cost and central issue price of grains”.
The finance ministry has also raised objections about the unsustainable nature of food subsidy expenses. However, a recent food ministry note states that it has been decided with the approval of the Prime Minister’s Office (PMO) to continue the existing CIP under the NFSA until further orders.
Due to lower production and higher global demand, the FCI’s procurement in the 2022-23 season fell by more than 56.6% to only 18.8 million tonne (mt) against 43.3 mt purchased from farmers in the previous year.
Meanwhile, stocks of wheat and rice with the FCI and state agencies have plunged to a five-year low at 37.6 mt on November 1, as against 72.1 mt a year ago. The grain stock is the lowest since 2017.