On March 26, the Union Cabinet approved a six-month extension for the Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY), ensuring that some 80 crore people will keep receiving free foodgrain until September.
"Even though COVID-19 has significantly abated and economic activities are gathering momentum, this PM-GKAY extension would ensure that no poor household goes to bed without food during this time of recovery," the government said in its statement on March 26.
This line of reasoning raises an obvious question: why should a poor household go to bed without food during any time? Or is the government not confident about the ongoing recovery being strong or even enough?
Perhaps there is another contributing answer.
So far, in the first five phases of PM-GKAY, the government has allocated 759 lakh metric tonnes (MT) of foodgrain. The sixth phase proposes to distribute another 244 lakh MT. If not for the scheme, India's grain storages would be overflowing.
According to data from the Food Corporation of India (FCI), 45.2 percent of its and state agencies' storage capacities were utilised to store wheat and rice, as on April 1, 2018.
The procurement has been such since then that storage capacity utilisation rose to 86.8 percent as on April 1, 2019, before easing marginally to 83.3 percent as on April 1, 2020. There was a substantial decline last year, with the first day of FY22 seeing 67.4 percent of the capacity being utilised to store wheat and rice.
High procurement, high stocks
As the chart shows, the foodgrain stock in the central pool far outstrips the levels dictated by the norms. However, the margin by which the stocks exceed the norms have risen in recent years. From 1.6 times the norm in April 2018, the four-quarter moving average for wheat-plus-rice stocks had risen to 2.6 times the norm in April 2021.
The high stocks are a result of high procurement. From 318.45 lakh MT in the 2014-15 kharif marketing season, the amount of rice procured for the central pool rose to 601.85 lakh MT in the 2020-21 season. So far in 2021-22, 494.94 lakh MT of rice has been procured for the central pool.
There is much to be said about how the procurement system leans in favour of cereals. But leaving that aside for now, the sixth phase of PM-GKAY is creating issues for the Centre's finances for FY23 even before the new year begins.
Fiscal pressure ahead?
The provision of free foodgrain over the next six months will cost the central government Rs 80,000 crore. However, the Budget for FY23 did not provide for this, with the total food subsidy for next year pegged at Rs 2.07 lakh crore, down from the revised estimate of Rs 2.86 lakh crore for FY22.
The FY23 subsidy bill was already under pressure before the weekend announcement. The rise in energy prices over the last couple of months should lead to an increase in fertiliser subsidy. The Budget had projected it to fall to Rs 1.05 lakh crore next year from Rs 1.40 lakh crore in FY22.
Then there is the fuel price issue. Pressure is mounting on the government to further cut excise duty on petrol and diesel, with the last few days seeing pump prices rising by more than Rs 4 per litre.
Economists estimate that a Rs 5 per litre cut in excise duty on petrol and diesel will lead to an annual revenue loss of around Rs 60,000 crore for the Centre.
An expenditure shock of Rs 80,000 crore even before the year has started cannot be good news. But the 2022 Budget was perhaps built for such a scenario, with its numbers widely seen as being rather conservative. Only time will tell if it can accommodate such an expense.
There can be few arguments against the free provision of foodgrains to those who cannot afford two square meals a day. But it will be interesting to make note of the circumstances when the scheme is finally stopped.
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