India to spend another ₹15,000 crore every year on free ration for the poor

Prime Minister Narendra Modi announced that the government will be extending Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) — the scheme that provides free ration — for five years. The scheme was due to expire later this year. Modi made the announcement while addressing a public rally in Chhattisgarh, where assembly elections will take place on November 7 and 17.

While the move will benefit 800 million people from rising food costs, the government's food subsidy bill will remain elevated. Sources told CNBC-TV18 that the Centre may incur an additional ₹15,000 crore annually for extending the free food grain scheme.

Over a five-year period, the additional cost for the government is likely to be upto ₹1 lakh crore. The budget estimates every year will be factoring in the extra cost to the fiscal, sources explained.

The government in December 2022 reworked the PMGKAY by stopping the additional supply of 5 kilos of free food grains under the public distribution system (PDS).

Instead, the normal entitlement under the National Food Security Act of 35 kg of food grains for Antyodaya Ann Yojana families and 5 kg for the Priority Households, which were sold at highly subsidised rates of ₹2/kg for wheat and ₹3/kg for rice, was made free of cost.

The government had said this reworked PMGKAY will continue till December 31, 2023, and the additional cost was factored in the FY24 food subsidy of ₹1.97 lakh crore. Sources added that the government will be well within this food subsidy budget in the current fiscal.

The ₹15,000 crore annual tab is the estimated earning via the ₹1, ₹2 and ₹3 charged for every kilo of coarse grains, wheat and rice sold through the PDS which the government would be forgoing as the distribution of grains will continue to be free.

Sources added that the longer-term fallout of these changes is the government will not have the flexibility to raise or charge the PDS rates for the next five years. Sources explained the NFSA has an option to raise the PDS price which now stands nullified due to the PMGKAY extension. "From ₹3 you can to go to ₹5 but from zero you cannot go to ₹5," sources said.

Under these circumstances, along with the annual increases in the procurement costs India's food subsidy is likely to remain high, but significantly lower than the Covid years.

As per budget numbers, in FY21 the government coughed up a massive ₹5.41 lakh crore on food subsidy, which has progressively got lower to a ₹1.97 lakh crore subsidy tab in the current fiscal.