A high-ranking official has indicated that the decision to extend the Prime Minister Garib Kalyan Anna Yojana (PMGKAY), the government’s free foodgrain scheme aimed at alleviating Covid-related distress, is likely to be a “political call.” The ongoing discussions at the highest level regarding another extension come as the sixth phase of the scheme concludes this month. The official revealed that the fiscal challenges are under consideration, with an additional outflow of approximately Rs 2 lakh crore expected for food, fertilizer, and cooking gas subsidies, exacerbated by the aftermath of the Russia-Ukraine war.
While there has been a pickup in revenue collections from both direct and indirect taxes, the Finance Ministry has expressed concerns about the additional outflow. The increased expenditure includes around Rs 1 lakh crore for fertilizers and Rs 80,000 crore for already decided foodgrain subsidies until September. The rising prices of petroleum products and increased spending on cooking gas subsidies contribute to the significant financial burden.
If the free foodgrain scheme is extended, the estimated cost for the second half would be slightly less than Rs 85,000 crore, according to the official. The Department of Expenditure, in a May internal note, had advised against the extension, citing concerns related to food security and fiscal considerations, deeming it excessive during non-pandemic times.
The debate over freebies has sparked political tension between states and the Centre, particularly given the linkage to the pandemic. Some experts argue for a phaseout, considering the reduced active case count and the milestone of over 200 crore vaccinations. The government is also grappling with a surge in the fertilizer subsidy bill, expected to range between Rs 2.15-2.5 lakh crore, depending on utilization volume.
Although government officials suggest no adjustment to the borrowing figure for the second half of the fiscal, close attention is being paid to the growing subsidy bill. The Expenditure Department’s note in May highlighted the high fiscal deficit of 6.40% of GDP, considering it a risk with potential adverse consequences. The note advised against major subsidy increases and tax reductions, emphasizing the non-necessity of continuing the PMGKAY beyond its present extension.
In March, the government extended the PMGKAY scheme until September 2022, with an approximate expenditure of Rs 2.60 lakh crore until March and an additional Rs 80,000 crore expected by September. The scheme covers nearly 80 crore beneficiaries, providing 5 kg of foodgrain per month for free in addition to the normal quota under the National Food Security Act (NFSA). Despite the fiscal challenges, healthy revenue trends have raised expectations of tax collections surpassing budgetary targets this year.
