India's Subsidy Bill Quadruples in 10 Years, Food and Fertilizers Lead the Surge

Extension of Free Foodgrain Program May Further Strain Budget

Dec 11, 2023 - 11:49
Dec 11, 2023 - 11:53
India's Subsidy Bill Quadruples in 10 Years, Food and Fertilizers Lead the Surge

Over the last ten years, the Modi government's subsidy cost has more than quadrupled, from Rs 2.5 lakh crore in 2014–15 to Rs 5.7 lakh crore in 2022–23, with food and fertiliser subsidies accounting for a significant portion of the total.

Economists warned that extending the free foodgrain program for a further five years might cause the subsidy tab to skyrocket.

Over the previous ten years, the target area has also changed. In 2013–14, the three most significant subsidies—petroleum (33.5%), food (36.1%), and fertiliser (26.4%)—accounted for 96% of the entire expenditure.

By 2022–2023, subsidies for food (47.7%) and fertilizer (44%) will be the most common, with petroleum accounting for only 1.2% of all subsidies.

Oil marketing corporations (OMCs) rely less on government subsidies now that their prices are tied to market pricing.

Over the last ten years, there have been noticeable changes in the pattern, with the elimination of fuel subsidies and an increase in the significance of food and fertilizer subsidies. There is a discernible trend in fertilisers towards subsidies based on nutrients. We anticipate that the food subsidy cost and the total subsidy bill would slightly exceed the planned objective in FY24 as the PMGKAY program has been extended for a further five years, according to Bank of Baroda economist Sonal Badhan.

The compound annual growth rate (CAGR) for food subsidies for the ten-year period from 2013–14 to 2022–23 was 11.5%, rising from Rs 92,000 crore in 2013–14 to Rs 2.7 lakh crore by 2022–23.

After the National Food Security Act (NFSA) was put into effect in 2013, there was an average 18% increase in food subsidies from 2013–14 to 2015–16.

Between 2016–17 and 2018–19, the subsidy bill underwent some rationalization and an average reduction of 10%.

However, the government launched the PM-Garib Kalyan Ann Yojna (PMGKAY) in response to the Covid-19 epidemic. This initiative helped about 80 crore people and reduced the cost of food subsidies from Rs 1 lakh crore in 2018–19 to Rs 1.1 lakh crore in 2019–20 and Rs 5.4 lakh crore in 2020–21.

Beneficiaries got subsidized rations under the NFSA and free food grains under PMGKAY till the end of 2022. The two plans were combined in order to simplify the payments.

The consequence was a reduction in the subsidy cost to Rs 2.9 lakh crore by 2021–2022 and Rs 2.7 lakh crore by 2022–2023. The subsidy is intended to reach Rs 2 lakh crore in 2023–2024.

The government just stated that the free food grains program would be extended for a further five years, so there may be a little deviation from the aim, the analyst added.

Effective management of spending and a strong tax base could prevent financial strain in the current fiscal year, but the food subsidy program is predicted to put more strain on the budget in the following years as rising grain prices and procurement costs drive up the subsidy bill.

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