Finance ministry denies expenditure department against continuing free foodgrain scheme

Representative image.

The finance ministry has denied that its department of expenditure has advised against the extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY) scheme beyond September.

When asked on July 26 in the Rajya Sabha whether the expenditure department was against continuing the free foodgrain scheme beyond September and did not want any new tax cuts to be announced "due to fiscal condition of the country", minister of state for finance Pankaj Chaudhary said, "No".

The question in Parliament follows news reports in late June that the expenditure department was concerned about the impact on the Centre's finances from PM-GKAY, which was in March extended for another six months.

The provision of free foodgrain under the scheme until September will cost the Centre Rs 80,000 crore. However, since the scheme's extension was announced after the presentation of the Budget for FY23, the government did not provide for this new expenditure.

The total food subsidy for FY23 has been pegged at Rs 2.07 lakh crore, down from the revised estimate of Rs 2.86 lakh crore for FY22.

On June 24, The Economic Times reported the expenditure department had said in an internal note (external link) any further tax cuts or food subsidy extensions could have "adverse consequences for the fiscal math".

"In particular, it is not advisable to continue the PMGKAY beyond its present extension, both on grounds of food security and on fiscal grounds," the report cited the note as saying.

Less than two months after the six-month extension for PM-GKAY was announced, Finance Minister Nirmala Sitharaman announced a reduction in the excise duty on petrol and diesel by Rs 8 a litre and Rs 6 a litre, respectively. This move will see the Centre forgo around Rs 85,000 crore in revenue this financial year, according to economists.

As a result of higher-than-budgeted expenditure and lower-than-anticipated revenues, economists see the Centre missing its fiscal deficit target of 6.4 percent of GDP for FY23.