The Union government has asked states to continue to lift food grains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) free of cost, confirming the scheme will not end by the current deadline of December 31

“The Food Corporation of India (FCI) may continue to allocate foodgrains to states and union territories free of cost till further order,” according to a food ministry communication to the corporation.

The free ration scheme was to end in December 2023, but prime minister Narendra Modi earlier this month at an election rally in Chhattisgarh had stated that the scheme would run for another five years.

The food ministry’s directive to FCI is the first official step to continue the scheme after Modi’a statement. A formal announcement is seen to be delayed due to the electoral code of conduct in place.

The extra cost of free grain scheme over National Food Security Act (NFSA) commitments is around Rs 15,000 crore annually, or less than Rs 4,000 crore in January-March 2024, as NFSA already provided for heavy subsidies.

Under PMGKAY, 813 million people are currently being provided 5 kg each of specified grains per month free of cost.

According to an official projection, running the PMGKAY in the current form for the next five years could necessitate a Budget outlay of Rs 11 trillion during the period in nominal terms.

The estimate of budget cost of PMGKAY extension for five years takes into account the economic costs likely to be incurred by the FCI and other agencies involved handling of the food stocks and public distribution.

Under PMGKAY, the government’s annual expenditure on account of the food subsidy is estimated at around Rs 2 trillion at current prices. The corporation distributes 58 million tonne (MT) of foograins – 40 MT (rice) and 18 MT (wheat) annually for the beneficiaries.

Correspondingly the FCI’s economic cost for rice and wheat for 2023-24 is estimated to increase Rs 39.18/kg and Rs 27.03/kg, from Rs 35.62/kg and Rs 24.67/kg respectively in 2021-22 Over the last two fiscal years, MSPs of paddy and wheat witnessed an increase of 5-7% annually.

Since January this year, the Centre has been providing free food grains (5 kg per beneficiary) to states for the scheme, initially valid till December 31 this year.

For FY24, Rs 1.97 trillion has been budgeted under this expense. However sources said that subsidy amount could decline a bit as FCI has sold close to 4 MT of wheat in the open market from its stocks, recovering a part of costs.

In April 2020, the government had launched PMGKAY in midst of the first Covid-19 wave to provide additional 5 kg of free foodg rain to each beneficiary under the NFSA in addition to 5 kg of grain at a highly subsidised rate of Rs 3/kg and Rs 2/kg for rice and wheat, respectively. The addition grain supplies, which cost the exchequer a massive Rs 3.9 trillion, ended in December, 2022.