The Union government’s food subsidy budget for FY26 is set to exceed the budget estimates (BE) of Rs 2.03 lakh crore by over Rs 22,000 crore due to the rising cost of holding surplus grains far in excess of what is needed for minimum support price (MSP) operations for paddy and wheat.
Sources said that FCI, through which over 70% subsidies are routed, has revised upward its projected expenditure from Rs 1.43 lakh crore (BE) to Rs 1.72 lakh crore for 2025-26 mainly because of surplus rice stocks which far exceeds the buffer.
The rest of the food subsidy is routed through those states who have opted for a decentralized procurement system.
Cost of surplus grains driving up expenditure
With a projection of 11% increase in the government’s food subsidy budget, overall subsidy burden under the he Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) or free ration scheme is likely to cross Rs 2.25 lakh crore, highest since the previous high of Rs 2.72 lakh crore in FY23.
So far the finance ministry has provided Rs 86,517 crore to FCI, 60% of the estimated expenditure at the beginning of FY26 of the corporation.
Sources said that talks are on with the finance ministry to release additional or supplementary funds for meeting expenditure under food subsidy at the revised estimate stage in February, 2026. However the ministry has indicated that additional subsidy expenses in 2025-26 for supplying subsidised rice sold through open market sale, and for grain-based ethanol blending programme should be de-linked from the food subsidy expenses, while projecting an expenditure of Rs 2.17 lakh crore in FY27.
Financial strain and policy responses to high economic cost
As mandated, in the current fiscal as on November 30, the FCI had to avail a short-term loan of Rs 32,220 crore. In addition, the government has provided for Rs 42,563 crore as wage and means advance, a temporary loan given by the finance ministry to FCI to meet mismatch in receipts and payment.
The borrowing was necessitated by the high economic cost of operations driven by FCI’s surplus grain stock.
Rise in food subsidy expenditure is despite a record open mark sales of rice by the FCI this fiscal at 7 million tonne (MT) so far. The sales surpasses FY25’s record sale of 4.63 MT. Officials said that the corporation may sell around 9 MT of rice to bulk buyers in FY26.
At the beginning of December, the government’s central-pool rice stock was close to 53 MT, over 4 times the buffer of 10.25 MT for October 1. The current stock with FCI includes over 20 MT of grain yet to be received from millers.
The FCI’s economic cost (including MSP, storage and carrying cost) for rice and wheat for 2025-26 as per budget estimate to increase to Rs 41.73/kg and Rs 29.80/kg, respectively, up from Rs 40.42/kg and Rs 28.50/kg in 2024-25.
For the last many years, annually the FCI supplies around 36-38 MT of rice and 18-20 MT of wheat under the free ration scheme or Pradhan Mantri Garib Kalyan Anna Yojana to around 810 million people. The MSP procurement from the farmers has been in the range of 75 to 80 MT in the last many years leading to piling up of stocks.
The food ministry has stated that a periodic annual increase in minimum support price (MSP) of rice and wheat in the range of 3% to 7% and open-ended procurement of rice and wheat provided to farmers have led to surplus grain stocks.
Under PMGKAY, 810 million people are currently being provided 5 kg each of specified grains per month free of cost. The free ration scheme is being extended till the end of 2028 and it would cost the exchequer Rs 11.8 trillion.