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Food Subsidy Budget Estimate to Reach Rs 2.3 Trillion for FY25

  • 21 Nov 2023

The Budget Estimate (BE) for the next financial year is expected to set the Centre's food subsidy at Rs 2.3 trillion, with the Revised Estimate (RE) for FY24 indicating a likely increase to Rs 2.14 trillion due to significant hikes in minimum support prices (MSP) for key crops.

Key Points

  • Estimated Increase: The food subsidy BE for FY25 is anticipated to be approximately 7% higher than the FY24 RE, according to a senior official.
  • Subsidy Inclusions: The subsidy estimate for the upcoming financial year factors in potential increases in MSP and other incremental expenditures.
  • Impact on Fiscal Deficit: Despite the expected shortfall in disinvestment receipts, the hike in food subsidy for the current financial year is unlikely to affect the Centre's goal of maintaining the fiscal deficit at 5.9% of GDP, thanks to healthy tax and non-tax revenues.
  • MSP Hikes: The MSP increases for key rabi and kharif crops this year are the highest since the adoption of a new policy in 2018-19, setting prices at 50% profits over the computed cost of production.
  • Wheat and Paddy MSPs: The MSP for wheat, the primary rabi crop, saw a sharp 7.05% increase to Rs 2,275/quintal for the 2024-25 marketing season. Paddy, the main kharif crop, had its MSP fixed at Rs 2,183/quintal, marking a 7% year-on-year increase.
  • PMGKAY Extension: Prime Minister announced the extension of free grains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) for another five years, benefiting 813 million NFSA beneficiaries with 5 kg of specified grains per month free of cost.

Implementation of Food Security/Subsidy Measures

Ensuring Food Security through Targeted Public Distribution System (TPDS):

  • Distribution of subsidized food grains protects beneficiaries from price volatility due to inflation.
  • Over the years, despite increased spending on food subsidy, the ratio of people below the poverty line has decreased.

Nodal Ministry and Departments for Implementation:

  • The Ministry of Consumer Affairs, Food, and Public Distribution oversees food subsidy implementation.
  • Two key departments:
    • Department of Food and Public Distribution
    • Department of Consumer Affairs
  • 98% of the ministry's budget is allocated to the Department of Food and Public Distribution.

Challenges to Food Security in India

Quality and Procurement Challenges:

  • Beneficiaries' complaints about poor-quality food grains.
  • Farmers receive Minimum Support Price (MSP) for specific crops, impacting incentive for diverse crop production.
  • Minimal procurement of crops other than wheat, paddy, and sugarcane.

Nutritional Imbalance and Beneficiary Identification:

  • Pressure on water table due to water-intensive crops.
  • Need for expanding subsidies to include protein-rich food items.
  • Under the National Food Security Act, State Governments lag in identifying beneficiaries.

Storage Capacity and Beneficiary Identification:

  • Inadequate storage capacity in states as per the Comptroller and Auditor General (CAG) report.
  • In 2016, 49% of beneficiaries were yet to be identified by State Governments.

Quantity of Food Grains and Drawal Rates:

  • States draw around 60-66 million tonnes annually, reaching 91-95% drawal rate.
  • National Food Security Act (NFSA) increased entitlements, leading to higher drawal rates.

Financial Considerations and Subsidy Bill:

  • Revised estimate for 2020-21 subsidy at about Rs.4.23-lakh crore, excluding extra budgetary resource allocation.
  • Increase in food subsidy bill from Rs.1.2 lakh crores in 2014-15 to Rs.3.8 lakh crores in 2020-21.
  • Borrowing from National Small Savings Fund (NSSF) discontinued in Union Budget 2021-22.
  • Food subsidy bill includes subsidies to FCI and States, calculated as the difference between Economic cost and Central Issue price.