The revised food subsidy programme is expected to help the Centre meet its fiscal deficit target of 6.4% in 2022-23 and also keep inflationary pressures under control, Nomura Holdings said. “The reorientation of the food subsidy programme makes for lower fiscal, inflation and political risks,” Nomura economists Sonal Verma and Aurodeep Nandi said in a note on Wednesday.
According to the agency, the government should save about 0.16% of GDP in the last quarter of the current fiscal due to a lower subsidy bill. On an annualised basis, the savings would be about 0.6% to 0.7% of GDP.
In 2023-24, the Centre is likely to target a below 6% fiscal deficit but the agency expects slippage upto 6.2% of GDP. “Discipline on the food subsidy bill will be an important factor in determining this upside risk,” it said.
The end of the free foodgrain scheme should also lower procurement requirements by the government and alleviate the stress on stockpiles of wheat and rice that are trending low at close to buffer norms, it further said. This, in turn, should help at the margin to reduce inflationary pressures on cereals in the open market.
According to the government, the outlay of food grains under PMGKAY was about 112 million tonne cumulatively over 28 months, or about 4 million tonne per month.
The Union Cabinet in its meeting on December 24 decided not to to extend the Pradhan Mantri Garib Kalyan Anna Yojana beyond December 2022. The government will, however, provide grains under the National Food Security Act (NFSA) free-of-cost to the 813 million beneficiaries during 2023.
Noting that the scheme was fiscally expensive, Nomura said it has cumulatively cost the government close to Rs 4 trillion since its inception in April 2020, over and above the regular food subsidy bill.
Even in the current fiscal, the food subsidy bill is seen at over Rs 3 trillion compared to the Budgeted Rs 2.07 trillion.
According to the government, the food subsidy bill in calendar year 2023 will amount to over Rs 2 trillion or about 0.7% of the GDP. Nomura said this should be the ballpark food subsidy allocation in the Union Budget 2023-24.
Calling it a politically deft move, especially in light of the spate of state elections in 2023 and general elections in 2024, Nomura said, “The withdrawal of the PMGKAY was always going to be politically tricky, but the simultaneous reorientation of the food public distribution system makes it an easier political sell. Elections are scheduled to be held in a number of States including Karnataka in May 2023, followed by Chhattisgarh and Madhya Pradesh in November and in Rajasthan and Telangana in December, culminating in the General Elections in 2024.
It however, cautioned that while the free food subsidy arrangement has been announced until December 2023, it will likely be politically difficult to reverse this decision even after this deadline expires.