Politics over economics: In freebie row, call on free foodgrain awaited

A decision to extend the Prime Minister Garib Kalyan Anna Yojana (PMGKAY) — the government’s free foodgrain scheme to alleviate Covid distress — is likely to be a “political call” with the sixth phase of the scheme coming to an end this month and the merits of yet another extension being actively discussed at the highest level, a top official has told The Indian Express.

In terms of fiscal math, the constraints are on the table: an extra outflow of around Rs 2 lakh crore for the estimated food, fertilizer and cooking gas subsidies that have shot up in the aftermath of the Russia-Ukraine war.

Even as revenue collections on both the direct and indirect tax front have picked up, offering a welcome buffer of sorts, the Finance Ministry has explicitly laid out its concerns.

“There are still things to come. There has been extra outflow, about Rs 1 lakh crore in fertilizers, Rs 80,000 crore in already decided foodgrain (subsidy until September). There will be some outflow on the petroleum side also, prices have gone up and spending has gone up for cooking gas through subsidies, it will be significant,” the official said.

“If the free foodgrain scheme gets extended, the cost for the second half would be little less than Rs 85,000 crore. Close to  that, but a bit lower,” the official added.

In May, the Department of Expenditure under the Ministry of Finance had, in an internal note, advised against the extension of the PMGKAY scheme both on “grounds of food security and on fiscal grounds” arguing that it’s “far beyond the need at a non-pandemic time”.

Huge increase in fertiliser subsidy burden (both urea & non-urea), re-introduction of subsidy on cooking gas, reduction of excise duty on petrol, diesel and Customs duty on various products have created a serious fiscal situation, the note had said.


Fiscal burden

The call on extending the foodgrain subsidy comes when the issue of freebies has touched off a heated political debate between states and the Centre. Given that it was linked to Covid, now that the active case count is below 60,000 and vaccinations have crossed 200 crore, some experts are arguing for a phaseout given the fiscal burden.

The government is also staring at a surge in its fertilizer subsidy bill, which is expected to be between Rs 2.15-2.5 lakh crore, depending on volume of utilisation. In May, Finance Minister Nirmala Sitharaman had said that in addition to the fertiliser subsidy of Rs 1.05 lakh crore in the budget, an additional amount of Rs 1.10 lakh crore is being provided. The fertiliser subsidy bill was estimated at Rs 1.05 lakh crore in the 2022-23 Budget. It stood at Rs 1,62,132 crore in 2021-22.

Though government officials have pointed out that there is unlikely to be any adjustment to the borrowing figure for the second half of the fiscal, a close eye is being kept on the surging subsidy bill even as tax revenue growth is providing a cushion.

In its note in May, the Expenditure Department had said that the budgeted fiscal deficit at 6.40% of GDP was itself “extremely high by historical standards, and deterioration therein poses a risk of serious adverse consequences”.

“It is vital that major subsidy increases/tax reductions are not done. In particular, it is not advisable to continue the PMGKAY beyond its present extension, both on grounds of food security and on fiscal grounds. As it is, each family is getting 50 kg of grains, 25 kg at a nominal price of Rs 2/Rs 3, and 25 kg free. This is far beyond the need at a non-pandemic time,” it said.

In March, the government extended the PMGKAY scheme for another six months until September 2022. The government has spent approximately Rs 2.60 lakh crore until March and another Rs 80,000 crore will be spent in the six months to September 2022, taking the total expenditure for PMGKAY to nearly Rs 3.40 lakh crore.

The scheme covers nearly 80 crore beneficiaries providing 5 kg of foodgrain per month for free. The additional free grains are over and above the normal quota provided under the NFSA at a subsidised rate of Rs 2-3 per kg

On the positive side, healthy revenue trends so far have led to expectations of tax collections crossing budgetary targets this year.

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Direct tax collections stood at Rs 4.8 lakh crore at the end of August, having achieved one-third of the Budget target for the financial year 2022-23.

Gross Goods and Services Tax (GST) collections rose to Rs 1,43,612 crore for August (for sales in July), sequentially lower than the figure in the previous month but 28.2 per cent higher year-on-year, with overall GST collections having risen 33.5 per cent year-on-year as against the Budget projection of 11.2 per cent growth in CGST collections.

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