Govt may earmark Rs 4 trillion for next year's food, fertiliser subsidies

India may earmark about Rs 4 trillion ($48 billion) for food and fertiliser subsidies for the next fiscal year, two government sources said, indicating fiscal caution ahead of this year's general election.

Food and fertiliser subsidies account for about one-ninth of India's total budget spending of Rs 45 trillion during the current fiscal year that ends on March 31.

The Ministry of Consumer Affairs, Food and Public Distribution has estimated next year's food subsidy bill at Rs 2.2 trillion ($26.52 billion), the two sources said. That is 10 per cent higher than a projected outlay of nearly Rs 2 trillion ($24.11 billion) for the current 2023-24 fiscal year.

Additionally, next fiscal year's fertiliser subsidy is expected to be Rs 1.75 trillion ($21.10 billion), down from the current 2022-23 fiscal year estimate of nearly Rs 2 trillion, one of the sources said.

The sources, which are directly involved in the decision making on the subsidies, did not wish to be named as they were not authorised to speak to the media.

Finance Minister Nirmala Sitharaman will unveil the 2024/25 budget on Feb. 1.

The Ministry of Finance, the Ministry of Chemicals and Fertilizers and the Ministry of Consumer Affairs, Food and Public Distribution ministries of finance did not reply to requests for comment.

Maintaining the combined subsidies at their current level would be unusual for a government facing a national election in just a few months, but Prime Minister Narendra Modi is widely expected to win a rare third term in elections scheduled for April and May.

Also, containing food and fertiliser subsidies is crucial for managing India's fiscal deficit, which Modi's government is targeting at 5.9 per cent of gross domestic product this year and planning to lower by at least 50 basis points in the fiscal year 2024/25.

The food subsidy bill is likely to go up next year as Modi's administration late last year extended its flagship free food welfare programme for the next five years.

India runs its multi-billion dollar food welfare programme, the world's biggest such initiative, by buying rice and wheat from millions of domestic farmers at state-set minimum or guaranteed prices and then supplying the staples for free to 800 million Indians.