NEW DELHI: The decision to extend the central government’s free ration scheme by another five years will not have any major impact on the government exchequer, a top government source said on Monday.
The official said that at least in the immediate term – for the next two years – the government sees no major fiscal burden due to the PM’s announcement.
Prime Minister Narendra Modi in an election rally in Chhattisgarh announced that the government will extend the free ration scheme, Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY) by five years till 31 December 2028. Under the free ration scheme, 80 crore beneficiaries receive five kg of food grains per person per month free of cost.
The government has allocated Rs 1.97 lakh crore for the scheme in the current financial year, which is lower than Rs 2 lakh crore allocated in previous financial year. In the first half of the current financial year, the government has incurred Rs 95,150 crore in food subsidy, which is significantly lower than Rs 1.16 lakh crore incurred in the same period last year.
Under the National Food Safety Act (NFSA), government used to provide 35 kg food grains per household at highly subsidized rates Rs 3/kg for rice, Rs 2/kg for wheat and Rs 1/kg for coarse grains. During the pandemic, the government offered an additional 5kg of food grains free of cost in a scheme called Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). In December 2022, the government merged both the schemes and offered 5 kg foodgrains per person per month free of cost.
The merger of the two schemes helped the government bring down food subsidy expenses from Rs 2.44 lakh crore in FY22 to Rs 2 lakh crore in FY23. According to Nomura, the current free food scheme is not fiscally unsustainable, and so its extension should have minimal additional fiscal impact this year. Though, its feels over the medium-term, the government will be forgoing revenues from its subsidised
food sales.
“Our back-of-envelope calculations suggest this could amount to 0.05% of GDP on an annualised basis. Additionally, as the government’s procurement costs increase, the food subsidy bill will also increase over time,” said a Nomura report. The government used to get around Rs 14,000 crore selling subsidized food grains.
Govt food subsidy programme