Cabinet approves free foodgrain under National Food Security Act for one year

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The Union Cabinet has approved the provision of free foodgrain under National Food Security Act (NFSA) for a period of one year.

Briefing the media at the conclusion of the Cabinet meeting, Commerce Minister Piyush Goyal said the Centre would bear the entire cost, amounting to around Rs 2 lakh crore, of the food subsidy.

Goyal said the move would benefit the 81.35 crore people who pay for subsidised foodgrain under the NFSA.

The Cabinet's decision comes days before the expiry of the PM Garib Kalyan Anna Yojana (PM-GKAY) free foodgrain scheme - which is set to end on December 31 - and a string of state elections in 2023 and the general elections in 2024.

The free foodgrain scheme PM-GKAY was launched early in the coronavirus pandemic to provide relief to the poor. However, it was extended multiple times even amid concerns about the mounting cost to the exchequer.

In July, the finance ministry denied in Parliament that the Department of Expenditure had advised against the extension of the scheme beyond September due to fiscal concerns. This followed reports that 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," a report cited the note as saying.

The free provision of foodgrain under the NFSA until the end of December 2023 comes weeks before Finance Minister Nirmala Sitharaman presents the Budget for 2023-24, which was expected to see a reduction in subsidies, particularly those of food, following the expiry of the PM-GKAY. However, the Rs 2 lakh crore that the Centre will now spend on free foodgrain under the NFSA means the food subsidy will likely remain high, putting pressure on the government's finances.

As per the budget estimate for 2022-23, the Centre's food subsidy bill was to be Rs 2.07 lakh crore.

In the first seven months of the year, the government had already spent Rs 1.35 lakh crore on the same - or 65 percent of the full-year allocation.