India foodgrain subsidy bill to surge 30% to Rs 2.7 lakh crore this year

India's spending on subsidised foodgrain to the poor may rise to Rs 2.7 lakh crore this fiscal year, as the government continues to provide support to the poor at least until December, according to a government official and a document reviewed by Reuters.

Federal government food subsidies will likely increase by 30 per cent over the Rs 2.07 lakh crore estimated in the budget, the official said, speaking on condition of anonymity as discussions are confidential.

Increased subsidies on foodgrain and fertiliser are likely to strain the federal budget, even though the government has seen strong tax collections this year. That could prompt it to cut other expenses to meet the budgeted fiscal gap of 6.4 per cent of gross domestic product (GDP), Reuters reported.

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As of end November, the Department of Expenditure has already released foodgrain subsidies worth about Rs 1.5 lakh crore to the state-run Food Corporation of India and states, according to a government document seen by Reuters.

India’s foodgrain subsidy bill has jumped sharply since the government announced a scheme in April 2020 to provide free rice or wheat to about 800 million people to reduce the pressure on household incomes from the Covid-19 pandemic.

The scheme has been slated to run from April 2020 to December 2022, leading to a total expenditure of Rs 3.9 lakh crore.

The finance ministry has opposed an extension of the measures, citing pressure on government finances.

But the costs could rise further if the government extends the programme beyond Dec. 31, when it is set to end.

If the scheme is extended until March 2023, the cost will shoot up to nearly Rs 3.1 lakh crore-- the second highest ever, the official added.

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India’s foodgrain subsidy bill totalled Rs 2.9 lakh crore in 2021/22, when the government’s free food grain distribution scheme was operational throughout the year.

For 2020/21, the government had spent about Rs 5.3 lakh crore on foodgrain subsidies but this was partly because it chose to settle past borrowings of the Food Corporation of India.

The Ministry of Finance and the Ministry of Consumer Affairs, Food and Public Distribution did not immediately respond to emailed queries from Reuters.

India's total federal government expenditure is estimated at Rs 39.4 lakh crore for 2022/23.

The government is also staring at a high fertiliser subsidy bill, over the estimated Rs 1.05 lakh crore in the budget, as the war in Ukraine has led to a surge in prices.