Subsidy bill may top $67 billion in risk to PM Modi’s budget goals

Combine harvesters in the rice paddy field during harvesting in Laotan village of Ambala district, India, on Sunday, Oct. 9, 2022. Rice is a staple food for about half of the world’s population, with Asia producing and consuming about 90% of global supply. Photographer: T. Narayan/Bloomberg

A pool of money India uses to subsidise some costs for the poor and farmers will be overshot by about a third, forcing the government to cut spending in other areas and dip into small savings to meet the extra expenditure, according to people familiar with the matter.

Subsidies on food, fertilizer and fuel will cost at least 5.4 trillion rupees ($67 billion) in the fiscal year ending March 2023, against the budget estimate of 3.2 trillion rupees, the people said, asking not to be identified as the discussions are private.

Asia’s third-largest economy is grappling with an inflated subsidy bill after a series of challenges from the pandemic to the war in Ukraine boosted commodity prices. For a third straight year, India is on course to miss its subsidy estimates, which comprise a 10th of the total government expenditure.

The government will re-prioritize spending and borrow more from the small savings fund as it aims to lower the fiscal deficit to 6.4% of the gross domestic product, officials said. Tax receipts are expected to exceed the target, but it won’t be enough to meet the additional expenditure requirements, they added.

A spokesperson for the finance ministry declined to comment.

Prime Minister Narendra Modi’s administration will outline the federal spending plan for the coming fiscal year in its February budget. It comes amid global recession fears, slowing domestic growth and elevated inflation, resulting in higher borrowing costs.