Despite an annual increase in the minimum support prices (MSP) pushing up economic costs of grain handling, the government has estimated a flat growth for food subsidy in the next financial year over the revised estimate for the current year. The projected subsidy expenditure on food for FY26 of Rs 2.03 lakh crore, is up just 3% year, barely covering the inflation.
The subsidy outlay for the current fiscal year was originally estimated at Rs 2.05 lakh crore but the RE turned out to be Rs 1.97 lakh crore as offloading of wheat and rice in the open market helped reduce the costs of running the National Food Security Act.
Official sources said in the next fiscal also, food subsidy would be kept under control through offloading of surplus rice to states and for ethanol manufacturing from rice.
Officials said while increase in MSP of paddy and wheat is being increased 6% – 7% in kharif and rabi seasons annually, the government anticipates a lesser increase in corresponding rise in food subsidies due to liquidation of stocks through various measures.
Recently according to a food ministry order, state governments and their corporations can purchase up to 1.2 million tonne (MT) of rice, while ethanol distilleries are allowed to buy up to 2.4 MT at a reduced rate Rs 2250/quintal, a reduction of 20% from the earlier price of Rs 2800/quintal.
“Besides these liquidations, there will be continuance of open market sale for the bulk buyers as well, which would reduce cost of holding surplus grains,” source said.
While the economic cost of rice and wheat (2025-26) which includes MSP, storage, transportation and other costs is yet to be worked out. The handling of rice and wheat for 2024-25 is estimated to increase Rs 39.75/kg and Rs 27.74/kg, from Rs 39.31/kg and Rs 27.09/kg respectively in 2023-24.
Annually the FCI supplies around 36 – 38 MT of rice and 18 – 20 MT of wheat under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) or free ration scheme while the procurement has been over 75 MT for the last many years leading to piling up of stocks.
As part of the central pool stock,the FCI currently holds 49.69 million tonne (MT) — 33.4 MT of rice and 16.28 MT of wheat. This stock excludes 34 MT of rice receivable from millers. The stock is against the buffer of 21.41 MT for January 1.
Under the PMGKAY, 5 kg of rice or wheat are provided free of cost monthly to each of the 801 million beneficiaries. Before January 2023, marginal prices were paid by the beneficiaries, and the shift to a regime of completely free supply of grains raised the cost by 3-4%.
The food subsidy bill had skyrocketed in FY22-FY23 because of a scheme that doubled the subsidised food grains supplies. In addition to 5 kg of grain per head free under PMGKAY and beneficiaries under the National Food Security Act were provided foodgrains at highly subsidised rates of Rs 3/kg and Rs 2/kg for rice and wheat, respectively.
More than 530,000 fair price shops across the country distribute free grain to beneficiaries.. Currently, the scheme is being implemented across all 36 states and Union Territories.