Extending free food grain for poor scheme beyond September not advisable on fiscal ground: Expenditure Department

The free food grain for poor scheme PM-GKAY should not be extended beyond September as it could strain government finances, the Expenditure Department has said.

The Department also said the high food security cover has already “created a serious fiscal situation” and is not needed in non-pandemic times.

In March, the government extended the Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY) scheme for another six months i.e., till September 2022.

The government has spent approximately ₹2.60 lakh crore till March and another ₹80,000 crore will be spent till September 2022, taking the total expenditure under PM-GKAY to nearly ₹3.40 lakh crore. The scheme covers nearly 80 crore beneficiaries.

In its monthly report, the Department cited the adverse financial position of the Centre and said that recent decisions on continuation of PMGKAY, a huge increase in fertiliser subsidy burden (both urea and non-urea), re-introduction of subsidy on cooking gas, reduction of excise duty on petrol and diesel and customs duty on various products have created a serious fiscal situation.

“It is vital that major subsidy increase/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,” the report said.

The Expenditure Department further said that the budgeted fiscal deficit at 6.4% of GDP for this fiscal was itself extremely high by historical standards, and deterioration therein poses a risk of serious adverse consequences.

The Budget had pegged the fiscal deficit, which is the difference between government revenue and expenditure, at 6.4% or ₹16.61 lakh crore. In April, the first month of current fiscal, the deficit stood at ₹74,846 crore – or 4.5% of the full-year target.

In the last fiscal, the deficit was 6.71% or ₹15.86 lakh crore, lower than the revised estimates of 6.9% on better tax revenue mop up.

The government’s finances are already strained with increased fertiliser subsidy outgo of ₹60,939.23 crore for the first six months of this fiscal.

While the cooking gas subsidy to poor would cost the government ₹6,100 crore, the reduction of excise duty on petrol and diesel would alone cost ₹1 lakh crore.

Also, the government is expecting a ₹10,000-15,000 crore revenue loss from the recalibration in customs duty on iron and steel and plastic.

Finance Minister Nirmala Sitharaman had last month announced a cut in excise duty on petrol by a record ₹8 per litre and that on diesel by ₹6, and stated that Ujjwala scheme beneficiaries will get ₹200 per cylinder subsidy for 12 bottles in a year to help ease some of the burden arising from cooking gas rates rising to record levels.

A 14.2kg LPG cylinder costs ₹1,003 in the national capital. Pradhan Mantri Ujjwala Yojana beneficiaries will get ₹200 subsidy directly in their bank account and the effective price for them would be ₹ 803 per 14.2kg cylinder.

In March 2020, the Centre had launched the scheme, Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), to provide free foodgrains to over 80 crore beneficiaries covered under the National Food Security Act (NFSA) as part of its efforts to reduce the hardships of people during the COVID-19 pandemic.

The Centre provides 5kg of foodgrains per month for free under this scheme.

The additional free grains are over and above the normal quota provided under the NFSA at a highly subsidised rate of ₹2-3 per kg.