The food subsidy bill spiked sharply this year, from ₹1.15 lakh crore in the 2020-21 budget estimates to ₹4.22 lakh crore in the revised estimates, reflecting the additional cost of free foodgrain distribution in the wake of the COVID-19 pandemic, as well as the government’s decision to pay the Food Corporation of India’s (FCI) burgeoning loans and return to budgetary transfers to fund the food subsidy bill. In 2021-2022, the food subsidy budget has been set at almost ₹2.43 lakh crore.
Economists welcomed the Centre’s move, saying it would help clean up the government’s accounts and improve the financial health of FCI.
“I propose to discontinue the NSSF [National Small Savings Fund] loan to FCI for food subsidy and accordingly Budget provisions have been made in RE 2020-21 and BE 2021-22,” Finance Minister Nirmala Sitharaman said in her budget speech.
FCI procures grains from farmers at an economic cost of almost ₹27 a kg for wheat and ₹37 for rice, and then provides it to 80 crore poor people through the public distribution system (PDS) at the subsidised rates of ₹2 a kg for wheat and ₹3 for rice. However, for several years, the budgetary allocation for PDS has not been sufficient to cover FCI’s subsidy costs, forcing it to borrow from the NSSF at a rate of about 8%. Its outstanding loans are now well over ₹2 lakh crore. Over the last year, the COVID-19 relief measure to provide additional free grains under the PDS for 8 months, plus free grains for migrants without ration cards, has only increased FCI’s borrowings.
‘Move to increase transparency’
“This is a move to increase transparency, bringing a subsidy expenditure back on the government’s books. It’s an accounting adjustment that will help reflect the government’s debts and current financial state more accurately,” said D.K Srivastava, chief policy advisor at EY and a member of the Advisory Council to the Fifteenth Finance Commission.
“Between this year and next year, the budgetary allocation will take care of most of FCI’s outstanding claims,” said former Food and Agriculture Secretary T. Nanda Kumar. “The economic cost of procuring and distributing wheat and rice will go down, because the interest burden will be lower. FCI will also be left in better financial shape to face future challenges,” he added.
Subsidies to aid the sugar industry and cane farmers have also shot up for the coming year. A ₹2000 crore allocation has been made for a new scheme to encourage sugar exports by helping sugar mills meet the marketing costs. A scheme to maintain a buffer stock of 40 lakh metric tonnes has seen its budget allocation jump from ₹200 crore to ₹600 crore. Another scheme to help sugar mills convert surplus sugar into ethanol has also been expanded from ₹50 crore to ₹300 crore in the coming year.