Time has come to cut back on food subsidy bill, economists say

The Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY), a food security programme through which the poor received free food grains after the Covid-19 outbreak, has outlived its utility and the government should resist the temptation to overspend and shift its focus to infrastructure, economists said.

“There needs to be a more targeted approach,” DK Joshi, chief economist at Crisil, said while making a case for scaling back food subsidies. “There are 80 crore (800 million) beneficiaries under the scheme – that’s nearly 70 percent of the population – getting free food grains. We need continued focus on infrastructure,” Joshi said.

Arvind Panagariya, former vice chairman of Niti Aayog, the government’s think-tank, had said, “We need to get back to fiscal consolidation. That means restraining expenditure. Consumption demand is returning. Investment demand is robust. On poverty alleviation, we need simple cash transfers so people can use labour on building productive assets.”

However, an advisor to the Prime Minister’s Office said taking away subsidies is always tricky.

“When have we ever seen subsidies getting rolled back?” the advisor asked.

Populist schemes

As Prime Minister Narendra Modi’s government gears up to present its last full budget before the general elections in 2024, it faces challenges including slowing growth, the possibility of a global recession and the need to keep consumption going. India has managed to stay reasonably upbeat even amid strong global headwinds.

The Reserve Bank of India scaled back its growth estimate for FY23 to 6.8 percent from 7 percent previously and said India will still remain among the fastest-growing major economies.

Days after the Bharatiya Janata Party’s stupendous victory in the Gujarat assembly elections, where it overcame anti-incumbency and inflation among other factors to secure a seventh consecutive term, Modi attacked populist measures announced by political parties to win elections.

“A country cannot move ahead by shortcuts. There is a disposition among certain parties to indulge in shortcut politics for selfish ends. Parties who adopt these shortcuts are the country’s biggest enemies whose aim is to merely come to power by making hollow promises. At a time when India is working on objectives for the next 25 years, these political parties, out of their own selfishness, want to destroy the economy,” Modi said.

According to economists, the budget, which is likely to be presented on February 1, warrants the pruning of the subsidy bill, especially for food, and diverting a part of those savings towards infrastructure spending. India’s subsidy bill spiked to Rs 7,06,006.53 crore in 2020-21 and is expected to exceed Rs 5.3 lakh crore in the current financial year.

Of the total subsidy of Rs 3,17,866 crore budgeted for FY23, Rs 2,06,831crore, or about two-thirds, was allocated for food.

In the past two years, a host of schemes were announced and implemented for the country’s most vulnerable people. The PM-GKAY was one of the key schemes that provided support to millions of Indians during the pandemic.

Under this welfare scheme, 5 kg of food grains per person per month is provided free of cost for all beneficiaries covered under the National Food Security Act, including those covered under Direct Benefit Transfer (DBT).

The free food grains scheme has been extended to December. Until now, it has cost the government Rs 3.45 lakh crore and its extension to December takes up the cost to Rs 3.91 lakh crore.

On December 9, the Modi government sought approval for fresh expenditure of Rs 2,14,508 crore towards major subsidies- beyond the budgeted Rs 3,17,865 crore for 2022-23. A big chunk of this spending is expected to go towards food subsidies.

As of November, rice and wheat stocks were down to their lowest in five years.