The government is considering several proposals to provide for the additional food subsidy requirement over the budget estimate (BE) of Rs 2.03 lakh crore for FY26.
According to sources, while the additional bill is around Rs 25,000 crore, food subsidy outlay for the year may be raised by only Rs 5,000 crore. A boost to open market sales may help contain the immediate demand for additional subsidy. Dipping into the price stabilisation fund for |Bharat Rice” retail market scheme, and to give support to various state government schemes may also be considered, the sources added.
Bridging the Gap
Funds may also be extended for use of subsidised rice in the ethanol blending programme, being implemented by oil marketing companies.
In FY26 so far, FCI has supplied 3.7 million tonn (MT) of rice at subsidised rate of Rs 2320/quintal while 2.7 MT of grain has been supplied to states at Rs 2250/quintal. The economic cost including MSP, storage and carrying cost) for rice for 2025-26 as per budget estimate is Rs 4173/quintal.
Rising Procurement Costs
Additional expenditure on account of food subsidy is projected on account of the rising cost of holding surplus grains far in excess of what is needed for minimum support price (MSP) operations for paddy and wheat.
The food subsidy is primarily employed to run the supply of free food grains to 810 million people under the National Food Security Act.
FCI, which accounts for over 70% of the government’s food subsidy outgo, has revised its projected FY26 expenditure to Rs 1.70 lakh crore, up from the budgeted Rs 1.43 lakh crore (95% of total subsidy estimate of Rs 1.5 lakh crore).
So far in FY26, the finance ministry has released Rs 86,517 crore to FCI, covering about 60% of the corporation’s estimated expenditure.\ In addition, FCI has received a temporary ‘ways and means’ advance of Rs 50,000 crore, which will eventually need to be adjusted against food subsidy allocations.
However, the food ministry has so far been unable to secure approval for a higher allocation amid tight fiscal conditions.
Rise in food subsidy expenditure is despite a record open mark sales of rice by the FCI this fiscal is close to 8 million tonne (MT) so far. The sales surpasses FY25’s record sale of 4.63 MT.
The current effective central pool rice stock is over 31 MT, over 3 times the buffer of 7.61 MT for January 1.
Officials said the current stock with FCI includes about 31.5 MT of grain yet to be received from millers.
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 (PMGKAY) 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 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.