Politics above economics: In freebie row, call for free food grain expected


A decision to extend Prime Minister Garib Kalyan Anna Yojana (PMGKAY) – the government’s free food grain scheme to ease Covid distress – is likely to be a ‘political call’ with the scheme’s sixth phase ending this month and the substance that another extension be actively discussed at the highest level, a senior official told The Indian Express.

In terms of budget calculation, the constraints are on the table: an additional outflow of around Rs 2 lakh crore for estimated food, fertilizer and cooking gas subsidies that exploded in the aftermath of the Russian-Ukrainian war.

Even as tax revenues on the direct and indirect tax front have picked up, providing a kind of welcome buffer, the finance ministry has explicitly voiced its concerns.

“There are still things to come. There were additional outflows, about Rs 1 lakh crore in fertilizer, Rs 80,000 crore in food grains already decided (subsidy until September). There will also be outflows on the oil side, prices have increased and spending has increased for cooking gas thanks to subsidies, this will be important,” the official said.

“If the free food grain scheme is extended, the cost for the second half would be just under Rs 85,000 crore. Close to that, but a bit lower,” the official added.

In May, the Expenditure Department of the Ministry of Finance had, in an internal note, advised against the extension of the PMGKAY program for both “food security and fiscal reasons” arguing that it is “far beyond beyond the needs at a non-pandemic level”.

The huge increase in the burden of fertilizer subsidies (urea and non-urea), the reintroduction of cooking gas subsidies, the reduction of excise duties on petrol, diesel and tariffs on various products have created a serious fiscal situation, according to the memo.


Tax burden

The call for the extension of the food grain subsidy comes as the issue of freebies has sparked heated political debate between the states and the Center. Given that it was linked to Covid, now that the number of active cases is below 60,000 and vaccinations have crossed 200 crores, some experts are arguing for elimination given the tax burden.

The government is also considering an increase in its fertilizer subsidy bill, which is expected to be between Rs 2.15 and 2.5 lakh crore, depending on the volume of use. In May, Finance Minister Nirmala Sitharaman said that in addition to the fertilizer subsidy of Rs 1.05 lakh crore in the budget, an additional amount of Rs 1.10 lakh crore was being provided. The fertilizer subsidy bill was estimated at Rs 1.05 lakh crore in the 2022-23 budget. It stood at Rs 1,62,132 crore in 2021-22.

Although government officials have stressed that there is unlikely to be any adjustment to the borrowing figure for the second half of the financial year, a close eye is being kept on the rising subsidy bill, although tax revenue growth provides a cushion.

In its May memo, the Expenditure Department said the fiscal deficit budgeted at 6.40% of GDP was itself “extremely high by historical standards, and its deterioration poses the risk of serious adverse consequences.”

“It is vital that significant increases in subsidies/tax cuts are not made. In particular, it is inadvisable to continue the PMGKAY beyond its current extension, both for food security and fiscal reasons. As things stand, each family receives 50 kg of grain, 25 kg at a nominal price of Rs 2/Rs 3 and 25 kg free. This is far beyond what is needed in non-pandemic times,” he said.

In March, the government extended the PMGKAY scheme for another six months until September 2022. The government has spent about Rs 2.60 lakh crore until March and another Rs 80,000 crore will be spent during the six months until in September 2022, taking the total expenditure for PMGKAY at almost Rs 3.40 lakh crore.

The program covers nearly 80 million beneficiaries by providing free 5 kg of food grains per month. The extra free grain exceeds the normal quota provided by the NFSA at a subsidized rate of Rs 2-3 per kg

On the positive side, good revenue trends so far have led to expectations that tax revenues will exceed budget targets this year.

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Direct tax collections stood at Rs 4.8 lakh crore at the end of August, having reached a third of the budget target for the financial year 2022-23.

Gross Goods and Services Tax (GST) collections reached Rs 1,43,612 crore for August (for sales in July), sequentially lower than the previous month’s figure, but 28.2% higher year on year on the other, overall GST collections increased 33.5 percent year-over-year compared to the budget’s projection of 11.2 percent growth in CGST collections.


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