How Ending 5-Kg Free Food Scheme Helped Budget's Fiscal Math

The target of achieving a lower fiscal deficit of 5.9% of the GDP necessitated cutting expenditure. That partly may have been helped by rationalising the food subsidy outlay under the free food plan.

5 kilograms of free grains scheme under the Pradhan Mantri Garib Kalyan Anna Yojana, or PMGKAY which was discontinued at the end of Dec.2022, partly contributed towards expenditure rationalisation as the government aimed at fiscal consolidation in the 2023 budget, according to a senior government official, who spoke on condition of anonymity.

If continued, the scheme could have resulted in additional expenditure of Rs 80,000 crore to Rs 1,00,000 crore towards food subsidies in the upcoming fiscal, the official said on the condition of anonymity.

As of Jan. 31, 2023, an amount of Rs 1.83 lakh crore, including Rs 85,467 crore under the PMGKAY, has already been released towards food subsidies against the budgeted allocation of Rs 2,86,978.5 crore for the year 2022–2023, according to parliamentary responses in the ongoing budget session.

"On the face of it, earlier some parts of the scheme were free, but now the quantity of grain distributed has gone down, so that’s why there’s a saving in expenditure," Devendra Pant, chief economist at India Ratings told BQ Prime. "Had PMGKAY continued, due to food subsidies, the fiscal deficit would have been higher than 5.9% (of the GDP) in FY24. Therefore, the net savings have helped in fiscal consolidation,"

Under the previous version of the PMGKAY scheme, 5 kg of food grain per person per month was provided free of cost for all beneficiaries covered under the National Food Security Act, where Antodaya Anna Yojana and Priority Households, including those covered under direct benefit transfer, were included.

The scheme was implemented over and above the existing subsidy benefits to the National Food Securities Act beneficiaries who could get food grains at reduced prices of Re 1, Rs 2 and Rs 3 for one kg each of coarse grains, wheat and rice, respectively. PMGKAY was implemented in seven phases for 28 months from April 2020 to December 2022.

However, as the economy recovered, the cabinet in December decided to subsume the two schemes of the Department of Food and Public Distribution and decided to make the pre-existing subsidised scheme fully free for one year.

Piyush Goyal, minister for food and public distribution, told reporters in December that additional food grains under the PMGKAY, which was started during Covid, is not needed now as "financial conditions have now become normal", PTI reported.

The sunset on the erstwhile PMGKAY allocation also signals that the economy is moving away from pandemic considerations and shows consistency between policy and statement, according to Pant.

The financial outlay of the subsumed scheme is budgeted at Rs 2 lakh crore for the new fiscal, providing free grains covering 80 crore beneficiaries.