The Centre’s food subsidy expenses in the next financial year may be lower than the Budget estimate (BE) by around Rs 60,000 crore as high mandi prices and brightened prospects of exports will allow the government to cut procurement of rice and wheat by 20 million tonne or 20% from the target set.
While wheat procurement in the forthcoming rabi marketing session beginning April 1 will likely be 10 MT less than targeted 44 MT, rice procurement starting from October 1 is likely to be around 10 MT less than estimated 59 MT.
“International wheat prices have skyrocketed after the war in Ukraine, a major producer of wheat. Rice prices have also started hardening as countries look for alternatives to wheat and corn,” an official told FE.
The economic costs borne by the government via FCI and state-run agencies for grains sold through the public distribution system will reduce if the procurement falls. The economic costs for rice and wheat for FY23 are budgeted to be Rs 36.7/kg and Rs 25.9/kg, respectively. The likely reduction of 10 MT procurement of both cereals would result in savings on subsidy of Rs 26,000 crore and Rs 36,000 crore for wheat and rice, respectively, in FY23.
The government has budgeted Rs 2.06 trillion in food subsidies for the next financial year compared with the revised estimate of Rs 2.86 trillion for 2021-22. The free grains scheme – Pradhan Mantri Garib Kalyan Anna Yojana for the poor, which was running for the second year in a row as a Covid-relief measure – is scheduled to end on March 31, 2022.
India’s annual requirement for running the highly subsidised grains programme, under the National Food Security Act, is 60-65 MT of wheat and rice. With an inventory of about 53 MT in food grains with Food Corporation of India as on mid-March, the lower procurement will not impact the NFSA programme.
While the food subsidy is expected to undershoot, the savings on food subsidy could help the government offset the likely 50% increase in fertiliser subsidy from the budgeted Rs 1.05 trillion to about Rs 1.5 trillion in 2022-23 due to the rise in fertiliser and input costs.
Traders expect it to rise further to more than 20 MT in 2022-23, taking advatnatge of the global prices, the official said.
An anticipated surge in wheat exports because of the global demand is currently pushing up domestic prices above the MSP. In Madhya Pradesh, for instance, mandi prices are currently around Rs 2,100-2,350 per quintal against the MSP of Rs 2,015 a quintal. There is expected to be a sharp fall in procurement by agencies in the state because of export prospects and its proximity to Kandla and Mundra ports, from where most of India’s shipments take place.
“We anticipate a much lower wheat procurement this season against the target as prices are ruling above MSP,” Faiz Ahmed Kidwai, principal secretary, department of food and civil supplies, Madhya Pradesh, told FE. In Madhya Pradesh, the target was to procure 12.9 MT of wheat, which looks unlikely to materialise.
Wheat exports could be upwards of 10 MT in 2022-23 and the shipments would be mostly from Madhya Pradesh. India traditionally exports wheat to South Asian neighbours and northern Africa. Traders say exports from other wheat-producing states, especially Punjab and Haryana, will be challenging because of the absence of requisite transportation infrastructure, higher cost of transport to ports in the western region and higher levies on grain purchase.