A top official has indicated that the decision to extend the Prime Minister Garib Kalyan Anna Yojana (PMGKAY), the government’s initiative to provide free foodgrains during the Covid pandemic, is likely to be a “political call.” As the sixth phase of the scheme concludes this month, discussions on the merits of another extension are underway at the highest levels. However, fiscal considerations are a significant factor, with an estimated additional outflow of around Rs 2 lakh crore for food, fertilizer, and cooking gas subsidies, particularly due to the impact of the Russia-Ukraine war.
While revenue collections in direct and indirect taxes have shown improvement, the Finance Ministry remains concerned about the substantial additional expenditure. The rise in fertilizer subsidy by about Rs 1 lakh crore, already committed foodgrain subsidy of Rs 80,000 crore until September, and increased spending on petroleum and cooking gas subsidies contribute to the fiscal challenges. If the free foodgrain scheme is extended, the cost for the second half is anticipated to be slightly less than Rs 85,000 crore.
The Department of Expenditure had previously advised against extending PMGKAY on both “grounds of food security and on fiscal grounds,” emphasizing its necessity during a non-pandemic time. The political debate surrounding freebies, linked to Covid, has intensified, especially as active cases decrease, and vaccinations surpass 200 crore. Experts argue for a phaseout given the fiscal burden and changing pandemic dynamics.
The government is also grappling with a surge in the fertilizer subsidy bill, projected to range between Rs 2.15-2.5 lakh crore, depending on utilization volume. Despite healthy revenue trends, officials are cautious about the growing subsidy bill, and the Expenditure Department’s note in May highlighted concerns about the already high fiscal deficit.
The PMGKAY scheme, extended until September 2022, has incurred significant expenditure, totaling nearly Rs 3.40 lakh crore. While it covers nearly 80 crore beneficiaries, providing 5 kg of free foodgrain per month, concerns persist about its continuation beyond the present extension. On the positive side, robust revenue trends raise expectations of tax collections exceeding budgetary targets for the current fiscal year. Direct tax collections and GST collections have shown promising figures, offering a potential cushion amid fiscal challenges.