 "Foodgrains")
Ahead of the 2024 general elections, the Union Cabinet on Wednesday gave its approval to extend the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), a free foodgrain scheme that benefits over 800 million people, for five years, starting from the new year. This will entail an estimated expenditure of Rs 11.80 trillion.
The scheme was set to expire at the end of this calendar year after several extensions.
The annual expenditure on the scheme is projected to be around Rs 2.4 trillion, assuming a monthly expenditure of nearly Rs 20,000 crore on a pro-rata basis. However, the additional subsidy burden for the last three months of the current financial year is expected to be just Rs 6,000 crore, according to government sources.
The Centre has already spent around Rs 95,000 crore on the food subsidy during the first half of the current financial year, which constitutes 48 per cent of the budgeted amount of nearly Rs 1.97 trillion for the entire year. The same period of the last financial year, the actual expenditure accounted for 56 per cent of the budgeted expenditure.
A major concern for this financial year is the fertiliser subsidy. The non-urea fertiliser subsidy is estimated to be around Rs 60,000 crore in FY24, a 36 per cent increase from the Budget Estimates (BE), after accounting for global price hikes. In total, the fertiliser subsidy was estimated at Rs 1.75 trillion, with the urea subsidy estimated at around Rs 1.31 trillion and that on the non-urea fertiliser estimated at Rs 44,000 crore.
In the first half of FY24, around 96 per cent of the non-urea fertiliser subsidy and 56 per cent of the urea subsidy were spent.
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The petroleum subsidy could increase by Rs 10,000 crore over the budgeted amount of Rs 2,257 crore due to subsidised cooking gas cylinders for domestic uses.
Hence, the additional subsidy burden could be Rs 32,000 crore over the Budget Estimates. This could be offset by higher goods and services tax (GST) receipts, robust direct tax collections, transfers from the Reserve Bank of India, and dividends from public sector enterprises. Any further shortfall could be met through savings on other heads, helping the government to rein in the fiscal deficit at 5.9 per cent of the gross domestic product for the current financial year.
The announcement made on Wednesday indicated that in the subsequent financial years, the allocation made on the PMGKAY should be somewhere around Rs 2.4 trillion per year on a pro-rata basis. However, the economic cost, which is contingent on minimum support price (MSP) and also storage, transportation charges, and distribution cost, is a significant factor to consider.
The procurement incidentals in FY24 (BE) formed around 14 per cent of the economic cost of rice and 12 per cent of the economic cost of wheat. The MSPs of wheat and rice, the items that will be distributed through PMGKAY, have been rising at the rate of 5-7 per cent per year since 2019-20.
But, with both BJP and Congress announcing hefty increase in MSPs of paddy and wheat in poll-bound Madhya Pradesh, Chhattisgarh, Rajasthan, and Telangana (all of which contribute significant amount of grain to the central pool stocks), the challenge for the government will be to manage the subsidy bill in the coming years while keeping the farmers satisfied.
One way to somewhat limit the economic cost from spiraling out of control is to cap open-ended procurement and restrict it to what is required for a public distribution system, approximately 55-60 million tonnes per annum. However, this is easier said than done, particularly in years when cereal prices drop below their MSP.
Under the PMGKAY, the Centre provides 5 kg of free foodgrain per month to 813.5 million poor at no cost. The scheme was introduced in 2020 as a pandemic relief measure, providing an additional 5 kg of free foodgrain per beneficiary per month on top of the 5 kg of subsidised foodgrain under the National Food Security Act (NFSA). In December 2022, as the PMGKAY came to an end after multiple extensions, it was subsumed under the NFSA to provide a free ration for one year.
Under the NFSA, up to 75 per cent of the rural population and 50 per cent of the urban population are covered under two categories -- Antyodaya Anna Yojana (AAY) and priority households. AAY households, the poorest of the poor, are entitled to 35 kg of foodgrain per family per month, while priority households receive 5 kg per person per month.
This should help mitigate any financial hardship of the affected strata of society in a sustainable manner and ensure a long-term pricing strategy with zero cost to the beneficiaries, which is vital for effective penetration of the public distribution system (PDS), the government said in an official statement.
For instance, the economic cost of 35 kg of rice for an Antyodaya family comes to Rs 1,371, while the cost of 35 kg of wheat comes to Rs 946. These costs are borne by the central government under the PMGKAY, and the foodgrain is provided completely free to the families, it said.
The extension of the scheme could provide some relief to marginalised sections from high cereal prices. The retail price inflation in rice remained in double digits until October of this calendar year, while that for wheat remained at an elevated level of 7.61 per cent in October, even though it moderated from 7.93 per cent in the previous month.
According to a survey from LocalCircles, 26 per cent of the households surveyed indicated paying 20-40 per cent more for rice in the past year, while 7 per cent said that they had paid at least 40 per cent more for the cereal during the same period.
