By deftly managing the withdrawal of the pandemic-era free foodgrain scheme, the government has set the stage for lowering its food subsidy outgo in the next financial year.
Beginning April 1, the food subsidy outgo should fall to Rs 2.1 lakh crore, in line with the government’s estimates, according to QuantEco Research economist Yuvika Singhal.
Finance Minister Nirmala Sitharaman is due to table her budget for next financial year on February 1 amid expectations of measures to boost growth while lowering the fiscal deficit.
The Centre’s food subsidy bill had spiked in the wake of the Covid-19 pandemic as the government loosened its purse strings to help the economically weaker sections with free foodgrains, ensuring free distribution of foodgrains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) for 28 months until December 2022. This scheme offered an additional 5 kg of foodgrain to around 81.3 crore beneficiaries free of cost, over and above the allocation of highly subsidised food grains that citizens are eligible to purchase under the National Food Security Act (NFSA).
On December 23, the cabinet decided to provide free foodgrains to about 81.35 crore beneficiaries under the NFSA for one year from January 1, 2023. Simultaneously, it ended the PMGKAY.
“The reorientation of the food subsidy programme makes for lower fiscal, inflation and political risks,” said Sonal Varma, Nomura’s chief economist for India and Asia (excluding Japan).
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Since its inception in April 2020, PMGKAY had cost the exchequer close to Rs 4 lakh crore over and above the regular food subsidy bill, Varma said. The food subsidy bill was Rs 5.41 lakh crore in FY21 and Rs 2.86 lakh crore in FY22. For FY23, Nomura estimates the food subsidy outgo to rise to Rs 2.87 lakh crore against the budget estimate of Rs 2.07 lakh crore. Nomura expects the food subsidy for FY24 may be up to Rs 2.3 lakh crore.
While announcing the change in the food distribution schemes, Minister of Consumer Affairs, Food and Public Distribution Piyush Goyal had said that the Centre will spend more than Rs 2 lakh crore from January to December 2023 as food subsidy under NFSA and other welfare schemes.
“Apart from fiscal savings, bringing an end to PMGKAY was becoming inevitable as stocks of both wheat and rice have depleted considerably in the last one year by about 50 percent and 45 percent, respectively. While stocks of rice remain above buffer norms, those of wheat continue to hang precariously close to buffer norms as of December 2022,” QuantEco Research’s Singhal said.
Much-needed fiscal relief
A lower food subsidy bill will help the government manage its fiscal deficit, which it aims to lower to 4.5 percent of gross domestic product by FY26 from a budgeted 6.4 percent in FY23.
“Decision to reorient the food subsidy programme is positive for the fiscal math,” said Radhika Rao, senior economist at DBS Group Research.
“The fiscal impact of this reorientation of the food subsidy programme will be net positive compared to the FY23 math, resulting in a smaller outlay of Rs 150 billion (Rs 15,000 crore, or 0.1 percent of GDP) in FY24, whilst resulting in savings of around 0.6-0.7 percent of GDP which was being spent towards the extra food allocations under the pandemic-era support,” she added.
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