Centre Likely To Extend Free Ration PMGKAY Scheme By Another Six Months

The free foodgrain scheme, which was launched in April 2020 to soften the blow of the pandemic for the poor, was extended for the sixth time in March this year
Free ration
Free ration

As the September 30 deadline for the end of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) approaches, the government is considering its extension for another six months, a senior government official recently told Outlook Business.

“PMGKAY is a political decision. We are not ruling it (an extension) out. Last month’s inflation has been a bit of a concern and the larger geopolitical issues are also there. But that is a decision that will be taken at the party level,” says the official.

After the government announced a nationwide lockdown in March 2020 to curb the spread of Covid-19, it launched PMGKAY in April to protect the poor from the impact of the lockdown. Under the PMGKAY, the government provides free dry ration to 800 million and beneficiary families get 5 kg free ration each month per person. This is over and above what is already sanctioned under the National Food Security Act, which provides subsidised foodgrain to about 75 per cent rural and 50 per cent urban population.

The scheme was extended for the sixth time in March this year. Till March, spending on PMGKAY has been about Rs 2.60 lakh crore. It is also important to note that Gujarat and Himachal Pradesh are set to go to polls this year.

“The possible horizon could be for a six-month period. That would also provide some time to monitor how inflation goes. If at all an extension is opted for, then that could be the possible timeline,” says the official.

The Fertiliser Fix

The Covid-19 pandemic and the Russia-Ukraine war have put the government’s expenditure math under strain. Subsidies on account of cooking gas, fertiliser and food have resulted in government spending going up by about Rs 2 lakh crore.

For India, which is dependent on imports to meet its fertiliser demand, the war impacted its availability majorly as the region is a key supplier of fertiliser.

For this financial year, the government’s fertiliser subsidy bill is expected to be between Rs 2.15 crore and 2.5 lakh crore. In May this year, Union Finance Minister Nirmala Sitharaman had said that along with the Rs 1.05 lakh crore fertiliser subsidy accounted for in the FY22-23 Union Budget, an additional outlay of Rs 1.10 lakh crore was being allocated. Fertiliser subsidy was Rs 1.62 lakh crore in FY2021-22.

“As it stands now, spending would be higher than budgeted. We would look to make it up from revenue and privatisation receipts. The goal would be to plug fiscal slippage as much as possible,” the government official explained.

For FY23, the government has set a conservative divestment target of Rs 65,000 crore after setting ambitious goals for three years. The pandemic and the Russia-Ukraine war have impacted its privatisation plans and it had to even call off the divestment of the Bharat Petroleum Corp Ltd after failing to find suitors.

Expenditure Concerns

Till now, the government has maintained that rising expenditure would not impact its borrowing plans in the second half.

For FY22, the government's net direct tax collection was Rs 14.1 lakh crore, up from the revised estimates of Rs 12.5 lakh crore for 2021-22. While direct tax collection saw a 49 per cent growth, indirect tax collection grew 30 per cent in the last financial year. Gross tax collections came in at Rs 27.07 lakh crore in FY22 with collections from income tax, corporate tax, customs, and goods and services tax (GST) all picking up robustly.

For August this year, the government's direct tax collection came in at Rs 4.8 lakh crore—accounting for one-third of this financial year’s targets. For the same month, GST collection increased to Rs 1.44 lakh crore, up 28.2 per cent year on year.

Having said that, in a May note, the expenditure department had said that the budgeted fiscal deficit at 6.40 per cent of GDP was high by historical standards and an increase from that would have adverse consequences, adding that it is vital that major subsidy increases or tax reductions are not done.

Talking about the PMGKAY, it had interestingly noted: “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.”

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