Food subsidy set to touch a record Rs 3.7 trillion in FY21

This means the government will allow additional borrowings from the small savings kitty to the Food Corporation of India to partly finance the additional procurement, carrying, storage, and warehousing costs, which cannot be met from the Budget.

According to FCI, the economic cost of lifting 1-kilogram wheat works out to Rs 27, which is sold through the Public Distribution System under the National Food Security Act at a subsidised rate of Rs 2 a kilogram. Similarly for rice, the economic cost is Rs 37 a kilogram while the PDS rate is Rs 3 a kilogram.

Officials say, approximately Rs 60,000 crore is being spent during April-July towards the supply of free food grains through the PDS in the first phase of the Gareeb Kalyan Yojana announced on March 26. The Prime Minister on June 30 said another Rs 90,000 crore will be spent with the extension of free supply of food grains up to November, thus increasing the total spend on the Gareeb Kalyan Ann Yojana to Rs 150,000 crore in FY21.

“The 1.50 lakh crore outgo is in addition to the Rs 1.15 lakh crore the government has budgeted for. The Rs 1.15 lakh crore was the original subsidy amount without factoring in COVID”, a senior government official said. Officials added the government has responded to the developing situation, and the commitment will be met.

This pushes the estimated food subsidy for FY21 to a whopping Rs 2.64 lakh crore. Add to this the Rs 1.36 lakh crore off-budget borrowings from small savings already factored by the government for FCI, which is pre-COVID, and the total food subsidy could spike to a massive Rs 4 lakh crore for the current financial. Against this estimate, the department of food and public distribution numbers indicate a slightly lower expenditure of Rs 3.68 lakh crore.

Borrowing from small savings for subsidy expenditure also does not count in the fiscal deficit numbers and the government has increasingly relied on this mode for financing additional expenditures.

However, government officials also say the actual subsidy outgo will depend on the offtake of foodgrains by the states.

To give an example, under the AtmaNirbhar package, an estimated 8 crore migrants were to be provided free grains, but the official data of the Department of Food and Public Distribution shows only 2.13 crore migrants have benefitted between May 15 and June 30.