The extension of five-kilograms-a-month food relief scheme beyond September poses a fiscal challenge for the government already grappling with inflationary pressure and a fall in the nation's grain reserves to the minimum required level.
The Pradhan Mantri Garib Kalyan Anna Yojana, part of the Covid-19 relief package, offers free food grains of 5 kg per person per month to those covered under the National Food Security Act. The scheme was renewed six times over the past two years with the last extension ending in September, and has reached 80 crore beneficiaries.
The government's decision to extend the scheme by six more months from March 2022 will put additional burden of Rs 80,000 crore, according to a release by the Ministry of Food and Public Distribution in January, pushing the total subsidy burden to over Rs 2.9 lakh crore.
The other subsidies include Rs 1 lakh crore on account of excise duty cut on fuel, fertiliser subsidy of Rs 1.1 lakh crore, LPG subsidy of Rs 6,100 crore, among others, Finance Minister Nirmala Sitharaman tweeted in May.
An increase in subsidies would further widen the government's budgeted fiscal deficit target of Rs 16.61 lakh crore for the current fiscal.
NR Bhanumurthy, vice chancellor at Dr. B.R. Ambedkar School of Economics University, said it would be difficult for the government to extend the scheme given the current inflationary pressure and fiscal risks.
The scheme was announced with the onset of the pandemic and now that it has been over two and half years, I don’t see any reason for the government to continue the scheme. This is assuming there are no further shocks to the middle-class and poor households. In any case, the NFSA has other schemes which will continue to provide relief to the poor and vulnerable.Professor N R Bhanumurthy, Vice Chancellor at B.A.S.E
Amalendu Jyotishi, professor, School of Development at Azim Premji University, however, told BQ Prime that ideally the scheme should continue given the growing inflationary pressures.
“If the intent is welfare, then we look at the socio-economic factors—malnutrition, anemia, global hunger index, coupled with the Covid impact, shows that food subsidy plays an even more important role in buffering that gap to provide basic food security, if not nutritional security,” he said.
Pankaj Chaudhary, minister of state for finance, had said in response to queries in the monsoon session of parliament that the government continues to keep a tab on factors like food inflation and the prices of essential commodities by taking supply-side measures.
Apart from fiscal constraints, another problem is the decline in food grain stocks.
“It will be a difficult situation for the government to relieve pressure on targeted groups against the backdrop of low procurement,” Devendra Kumar Pant, chief economist at India Ratings and Research Pvt., said. “The scheme requires roughly 24 million tonnes (240 lakh metric tonnes) of rice and wheat for six months.”
The government has so far distributed 759 lakh metric tonnes of food grains to 80 crore NFSA beneficiaries, according to the Ministry of Food and Public Distribution. This would extend to 1,003 LMT of food grains following the sixth extension of the scheme from March to September 2022.
That has brought wheat stock closer to buffer norm level, said Pant. “With most of the wheat procurement over, if stock goes down from the operational end, we may end up having to import wheat to maintain our buffer stock norms, which will push prices up.”
And if wheat is imported to replenish stocks, then it will have further impact on inflation, current account deficit, capital flight and the currency, he said.
Maintaining the government buffer stock serves is another reason for the government to reconsider [extension of the scheme], said Bhanumurthy of Dr. B.R. Ambedkar School of Economics University.
“Last year, we had good production, and the area of cultivation was also increased for wheat and paddy which helped manage this scheme,” he said. “This year owing to the Ukraine war, there was a huge export of wheat which also put pressure on reserve.”
(Corrects an earlier version that misstated LPG subsidy and food grain volumes.)
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