Good News! Free Ration Scheme to Stay till FY23, Rs 1.5 trillion to be Spent on Food Subsidy

Despite the end of the Covid-19 pandemic, the Centre may keep the free rationing scheme, Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), in place till the end of the current fiscal year, if not longer. This means that the scheme might cost Rs 1.6 trillion to run in the current fiscal year.

Separately, it is expected to spend around Rs 1.5 trillion on food subsidies this year, roughly Rs 50,000 crore less than planned, thanks to expected savings from a 20% cut in wheat and rice procurement. PMGKAY, which was launched as a Covid-19 relief package for the low-income population in March 2020, cost the Centre Rs 2.6 trillion until the end of FY22.

Due to increased demand for wheat from export markets as a result of the Russia-Ukraine conflict, mandi prices for the commodity have already risen, allowing the Food Corporation of India (FCI) and other government agencies to reduce procurement at the minimum support price. According to economists, a 20% reduction in purchases from the intended levels would result in food subsidy savings of Rs 26,000 crore for wheat and Rs 36,000 crore for rice, with the majority of the savings occurring in the current fiscal year.

On March 26, the government announced that the PMGKAY would be extended for another six months, till September 2022, at a cost of Rs 80,000 crore. This was not taken into account in the FY23 budget.

In the recent Assembly elections in five states, including Uttar Pradesh, the plan appears to have paid off politically for the ruling National Democratic Alliance (NDA). It could benefit it in the next state Assembly elections in Himachal Pradesh and Gujarat in November and December, as well as being a useful instrument for protecting people at the bottom of the food pyramid from rising food prices.

The PMGKAY scheme, which provides free grains, was initially started for the April-June period of FY21, however, it was later extended until November-end 2020. It was restored in May 2021 after the second wave of the pandemic and then extended until the end of FY22.

814 million individuals are eligible for 5 kg free wheat/rice per person per month under the scheme, i.e., a family of five will receive around 25 kilogram grains free of charge in addition to the 25 kg they are entitled to under the National Food Security Act at Rs 2/kg.

"During the Covid crisis, when people were homebound, the scheme benefited them the most. As many households monetize a portion of their monthly quota, the in-kind subsidy has become almost like a cash transfer system," an official stated.

However, political considerations are likely to keep the scheme alive, and it may be tough to discontinue it before the general elections in April-May 2024, according to another source.

According to a recent working paper published by the International Monetary Fund (IMF), India's extreme poverty rate was as low as 0.8 per cent in 2019, and the government managed to maintain that level in 2020 despite the unprecedented Covid-19 outbreak by relying on food assistance through the PMGKAY. According to the 2011-12 consumption expenditure study, food accounts for 46 per cent of the typical Indian consumption basket.

 According to the report, however, it is as high as 60% among the poor. In March, India's retail inflation hit a new high of 6.95 per cent, the most in over a year. The government would have to find the means to fund this scheme on a fiscal level.

Due to high rises in the cost of imported fertilizers and inputs, which cannot be passed on to farmers, the government expects to spend Rs 1 trillion more on fertilizer subsidies in FY23 than projected.