Narendra Modi govt extends free ration scheme for three months: Here are the pros and cons

By: Anshul Vipat

Launched in March 2020, PMGKAY is one of the pet projects of PM Narendra Modi

In a bid to help the poor affected during the pandemic, the government had launched the Pradhan Mantri Garib Kalyan Anna Yojana. Launched in March 2020, PMGKAY is one of the pet projects of PM Narendra Modi. Under this scheme, 5 kg of free rice or wheat and 1 kg of whole chana are provided per person per month in addition to the subsidised ration already provided under the National Food Security Act. The scheme has had reached to 810 million beneficiaries making it the largest food security program in the world. Originally intended for only three months, the scheme has been extended over six times since then. On Wednesday, the scheme further received an extension of three months.

The successful implementation of the scheme has caused the exchequer Rs 3.16 trillion since 2020. According to the recent data released by the Ministry for Consumer Affairs, the Food Corporation of India had incurred around Rs 2.78 trillion so far while rest of the expenses of Rs 0.39 trillion has been incurred by states which follow decentralized procurement system. According to estimates, the allocation under PMGKAY is likely to cross Rs 3.4 trillion by the end of September 2022. With the new extension, the cost on the excequer is going to increase further.

Source: Food Corportion of India

According to the food ministry, close to 76 million tonne (MT) of grain was distributed under PMGKAY till March, 2022 and by end of September 30, 2022, total allocation of grain would be 100 MT.

PMGKAY had turned out to be a life saver for millions during the Covid pandemic period of the past two years. The scheme has yielded political dividends to the ruling National Democratic Alliance (NDA) in the recent Assembly elections in five states, including Uttar Pradesh. However, given the increasing fiscal deficit, this scheme poses serious adverse fiscal consequences.

In its monthly summary report the expenditure department in the finance ministry has cautioned against extension of the free ration scheme beyond September. Extending the scheme by a further six months could cost another ₹80,000 crore in FY23, lifting the food subsidy to nearly ₹3.7 lakh crore. However, the government has ignored this contention while extending this scheme.  In the 2020-21 revised estimate, the government's spending on food and fertiliser subsidy stood at 556,565 crore. Both the subsidies absorbed more than 15 percent of the total budget. 

In its revised budget estimate for the 2021-22 fiscal, the government pegged total subsidies to be at Rs 4,33,108 crore. Although this was lower than 2020-21 spending, but it was still higher than the pre-pandemic era. Out of these, a little over Rs 2.70 lakh crore is kept for food subsidies while about 1.62 lakh crore has been allocated for fertliser subsidies. 

However, both the components are set to overdue their budgeted estimates. The finance ministry, in May, declared an additional fertiliser subsidy of Rs 1.10 lakh crore for the present year. It is estimated that the fertliser subsidy figure could cross Rs 2.25 lakh crore in 2022-23

The government has budgeted a fiscal deficit of 6.4% of GDP for FY23. Fitch Ratings expects it to be 6.8% of GDP because of higher subsidies and loss of revenue due to duty cuts. The pandemic and changes in geopolitics due to Russia-Ukraine war has stressed govt's import bills. Last month's reduction in excise duty on petrol and diesel to dampen inflationary pressures is expected to cause a revenue loss of about Rs 1 lakh crore. The fertilizer subsidy which was budgeted at 1.05 lakh cr has already surged to 2.15 lakh crore, thanks to global prices.