The government’s food subsidy expenses in the current fiscal are likely to cross Rs 3.1 trillion, up 50% from the outlay made at the beginning of the year.
Sources told FE that the estimated food subsidy expenses in 2022-23 would be the second highest since FY21, when the finance ministry had made a provision of Rs 5.4 trillion, of which Rs 3.4 trillion was towards settling loans availed by the Food Corporation of India (FCI) from the National Small Savings Fund.
The government had settled the loans of FCI in FY21 and brought all food subsidy expenses into the Budget, ending the practice of off-budget financing of a part of the subsidy.
Food ministry officials said that with the extension of Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) or free ration scheme, for the seventh time till December-end, additional expenses of Rs 1.24 trillion over and above the budget estimate is envisaged in the current fiscal.
The officials said that due to lower procurement of wheat in the current marketing season (2022-23) would result in savings in the range of Rs 15,000 – Rs 20,000 crore this fiscal. The pre-budget consultations with the finance ministry and states were still going on.
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The government is yet to decide on extending the free ration scheme beyond December, 2022. PMGKAY was launched in April, 2020 to provide free 5 kg foodgrains per person per month to more than 8000 million beneficiaries covered under the National Food Security Act (NFSA) to reduce the hardships of people during the COVID pandemic.
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 Rs 3 trillion.
The estimated economic cost of food grains procurement by the FCI, which includes expenses such as Minimum Support Price (MSP) payment to farmers, procurement, acquisition and distribution costs, etc for rice and wheat are Rs 3,670.04 and Rs 2,588.70 per quintal, respectively, in 2022-23. The government distributes rice and wheat to beneficiaries under NFSA at Rs 3 and Rs 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 NFSA until further orders.
Around 70% of the government’s food subsidy budget is routed through FCI and the rest is provided to state governments which follow a decentralised procurement system.
“Current food subsidy expenses are financially unsustainable, which may touch Rs 3 trillion this year and it needs immediate correction,” Ashok Gulati, agricultural economist and former chairman, CACP, had said. He said the issue price in PDS should be fixed at 50% of MSP.
Due to lower production and higher global demand, 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 the farmers in the previous year.
The FCI procures and distributes more than 70-80 mt of wheat and rice annually. The corporation manages procurement, storage and transportation of rice and wheat to states for distribution, mainly for NFSA and other welfare schemes.