Indian food grain subsidy to surge to US$33 billion this year

Indian spending on subsidized food grain to the poor may rise to 2.7 trillion rupees (US$32.74 billion) this fiscal year, as the government continues to provide support to the poor at least until December 2022, according to a report by Reuters.

Federal government food subsidies will likely increase by 30% over the 2.07 trillion rupees (US$25.14 billion) estimated in the budget.

Increased subsidies on food grain and fertilizer are likely to strain the federal budget, even though the government has seen strong tax collections this year. That could prompt it to cut other expenses to meet the budgeted fiscal gap of 6.4% of gross domestic product (GDP).

As of end November, the Department of Expenditure has already released food grain subsidies worth about 1.5 trillion rupees to the state-run Food Corporation of India and states, according to a government document seen by Reuters.

India’s food grain subsidy bill has jumped sharply since the government announced a scheme in April 2020 to provide free rice or wheat to about 800 million people to reduce the pressure on household incomes from the COVID-19 pandemic.

The scheme has been slated to run from April 2020 to December 2022, leading to a total expenditure of 3.9 trillion rupees (US$47.25 billion).

India's finance ministry has opposed an extension of the measures, citing pressure on government finances.

But the costs could rise further if the government extends the program beyond December 31, 2022 when it is set to end.

If the scheme is extended until March 2023, the cost will shoot up to nearly 3.1 trillion rupees -- the second highest ever, the official added.

India’s food grain subsidy bill totaled 2.9 trillion rupees in 2021/22, when the government’s free food grain distribution scheme was operational throughout the year.

For 2020/21, the government had spent about 5.3 trillion rupees on food grain subsidies but this was partly because it chose to settle past borrowings of the Food Corporation of India.

The Ministry of Finance and the Ministry of Consumer Affairs, Food and Public Distribution did not immediately respond to emailed queries from Reuters.

India's total federal government expenditure is estimated at 39.4 trillion for 2022/23.

The government is also staring at a high fertilizer subsidy bill, over the estimated 1.05 trillion rupees in the budget, as the war in Ukraine has led to a surge in prices.