Centre may have enough stocks to run free grain scheme this financial year

But financial considerations remain, especially if disinvestment receipts don't meet Budget target

As the Centre set out to decide on extending the Pradhan Mantri Gareeb Kalyan Ann Yojana (PMGKAY) free foodgrain distribution scheme for the seventh time, it faced two main challenges.

One was the fiscal consideration, given the jump in subsidy burden that another extension would entail, and the second was something the country has seldom faced in recent years, the foodgrain stock position.

The fact that it chose a limited expansion for three months shows that there are concerns on both the fiscal and grain stock fronts.

Between the two, a back of the envelope calculation done by traders and market watchers shows that the grain stocks could be of lesser concern, although it isn’t as comfortable as it was during the previous six extensions of the PMGKAY.

Grain stocks

Grain stocks in the central pool stood around 56.11 million tonnes (MT) – this includes 9.58 MT of unmilled paddy – as on September 16, which is the latest available official data, while the grains required to maintain healthy operational stocks and strategic reserve levels on October 1 each year is 30.77 MT.

The country is required to maintain around 21.41 MT of foodgrain (wheat and rice) in its inventory by March 31 each year as per the buffer norms.

As per rough calculations, the monthly drawdown of grain stocks based on the changed mix between wheat and rice since July is around 8 MT (2 MT of wheat and 6 MT of rice) for both the regular PDS and PMGKAY.

This means that for the next six months from October, India will require around 48 MT of foodgrain and 24 MT for three months.

There is a catch, however. These numbers don’t take into account the rice procurement that is expected to start from October 1 for the 2022-23 marketing season that will get added to the Central pool.

According to official targets, India plans to procure around 51.8 MT of rice in the 2022-23 season (October to September). Even if half of this target is met before March 31, 2023 (that is around 26 MT), the grain stock levels will be well above the buffer and operational stock level required.

Between rice and wheat, stock of the former is much better than wheat because of the coming kharif harvest. In the case of wheat, the next harvest will hit the market only in April.

Sources said the limited extension gives the government an opportunity to assess the procurement and stock levels by December end before expanding the programme further.

This also ensures that some inventory is left in the central pool to intervene in the open markets if cereal prices continue firming up.

Biggest variable

The biggest question here is on the kharif rice production that will hit the market in the next few weeks.

According to the central government’s first official estimates, kharif rice production this year (2022-23) could be around 6.05 per cent less than last year at 104.99 MT.

Independent agencies, though, say the fall could be steeper. A few days back, Origo Commodities in a research report said rice production could fall almost 13 per cent to 96.7 MT this kharif season due to deficient rains in Uttar Pradesh, West Bengal, and Bihar.

The ban on exports of wheat and some rice varieties is being interpreted in some quarters as a move to ensure sufficient supplies for the domestic market.

The fiscal math

There could be an impact on the fiscal front as well, but robust tax collections and falling commodity prices may come to the Centre’s aid.

The exchequer could take a hit of Rs 44,762 crore with this extension and along with the earlier extensions would cost the government Rs 1.30 trillion.

However, as per some reports based on rough estimates there could be a savings of around Rs 70,000 crore from lower wheat procurement. So, the exchequer could be hit by Rs 60,000 crore on net basis.

Besides, there could be additional expenditure on fertilizers up to Rs 1.45 trillion. But this calculation was made before the sharp drop in prices since August. Gas prices are stabilising as well.

So, broadly speaking, there could be extra expenditure of Rs 2 trillion on food and fertilizer subsidies, which could reduce if commodity prices continue to fall globally.

This may be offset by robust tax collections.

While the Budget projected just 1.8 per cent growth in tax collections at Rs 2.76 trillion in FY23 over the actual collections of Rs 2.71 trillion in FY22, the two biggest sources — goods and services tax and direct taxes — saw a 33 per cent rise at Rs 12 trillion till August. 

A portion of this, theoretically 41 per cent, would go to the states.

A cut in excise duties on petroleum and diesel, though, would cost the exchequer Rs 85,000 crore. This would be partly met by the imposition of windfall taxes on fuels.

Besides, the government has garnered only Rs 24,500 crore from disinvestment so far, against the full-year target of Rs 65,000 crore.

Broadly, if tax revenues net the government Rs 2.75-2.80 trillion more, the government would sail through.

However, if disinvestment receipts don’t meet the Budget target, there could be a problem.