Free ration scheme may stay through FY23; PMGKAY to cost exchequer Rs 1.6 trillion this fiscal

Even though the Covid-19 pandemic has abated, the Center may continue with the free ration scheme – Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) – till the end of the current fiscal, if not beyond. This would mean that in the current financial year, it could end up spending a tidy sum of Rs 1.6 trillion to run the scheme.

Separately, it may also spend about Rs 1.5 trillion on food subsidy in the year, about Rs 50,000 crore less than the budgeted level, thanks to the likely savings from a 20% reduction in wheat and rice procurement.

Until the end of FY22, the Center had spent Rs 2.6 trillion on PMGKAY, which was rolled out as a Covid-19 relief package for the low-income population in March 2020.

High demand for wheat from export markets in the wake of the Russia-Ukraine war has already pushed mandi prices of the cereal up, allowing the Food Corporation of India (FCI) and other government agencies to cut procurement at the minimum support price. An estimated 20% reduction in the procurement from the targeted levels would result in savings on food subsidy of Rs 26,000 crore for wheat and and Rs 36,000 crore for rice respectively, with the bulk of the savings to occur in the current fiscal itself, according to analysts.

On March 26, the government had extended the PMGKAY by six months till September 2022 at an additional cost of Rs 80,000 crore. This was not factored into the Budget for FY23.

The scheme has apparently given political dividends to the ruling National Democratic Alliance (NDA) in recent Assembly elections in five states, including Uttar Pradesh. It could help it in the upcoming state Assembly elections in Himachal Pradesh and Gujarat in November-December, besides being an effective tool to shield people at the bottom of the pyramid from high food inflation.

Supply of free grains as part of the PMGKAY scheme was initially launched for the April-June period of FY21; it was later extended to November-end 2020.

In the wake of the second wave of the pandemic, it was reintroduced in May 2021 and then got extended till FY22-end.
Under the scheme, 814 million people are eligible for 5 kg free wheat / rice per person per month, ie, a family of five will receive about 25 kg grains free of cost in addition to 25 kg the family is entitled to receive at Rs 2 / kg under the National Food Security Act.

“The scheme has benefited people the most during Covid distress when people were home-bound. Now, the in-kind subsidy has become almost like a cash transfer scheme as many families are monetizing a part of the monthly quota, ”an official said.
However, political considerations will likely keep the scheme going and it may be practically difficult to end the scheme till April-May 2024 general elections, another official said.

An International Monetary Fund (IMF) working paper recently said extreme poverty in India was as low as 0.8% in 2019 and the country managed to keep it at that level in 2020 despite the unprecedented Covid-19 outbreak, by resorting to food transfers through the PMGKAY. The share of food in the average Indian consumption basket, according to the consumption expenditure survey of 2011-12, stands at 46%. However, for the poor, it’s upwards of 60%, according to the paper.
India’s retail inflation stood at a high of 6.95% in March, the highest in one-and-half years.

On the fiscal side, the government will have to find resources to fund this scheme. The government is also staring at extra expenditure of Rs 1 trillion on fertilizer subsidy in FY23 over budgeted level due to sharp increases in cost of imported fertilizers and inputs, which can not be passed on to farmers.

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