Government unlikely to expand free food grain program for the poor

The PM-GKAY free food grain program for the poor should not be extended beyond September as it could strain public finances, the Expenditure Department said. The department also said the high food security blanket had already “created a serious fiscal situation” and was not needed in non-pandemic times.

In March, the government extended the Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY) program for another six months, i.e., until September 2022. The government spent about Rs 2.60 lakh crore till in March and another Rs 80,000 crore will be spent till September. 2022, bringing the total expenditure under PM-GKAY to nearly Rs 3.40 lakh crore. The program covers nearly 80 million beneficiaries.

In its monthly report, the department cited the unfavorable financial situation of the Center and stated that recent decisions on the continuation of PMGKAY, a considerable increase in the burden of fertilizer subsidies (urea and non-urea), the reintroduction of the subsidy on cooking gas, the reduction of excise duties on petrol and diesel and customs duties on various products have created a serious budgetary situation.

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“It is vital that there is no major increase in subsidies/tax reductions. In particular, it is not advisable to continue the PMGKAY beyond its current extension, both for reasons of food security than for fiscal reasons. As each family receives 50 kg of grain, 25 kg at a nominal price of 2 rupees/3 rupees and 25 kg free. This is far beyond the needs in non-pandemic times” , says the report.

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

The budget had set the budget deficit, which is the difference between government revenue and expenditure, at 6.4 percent or Rs 16.61 lakh crore. In April, the first month of the current financial year, the deficit stood at Rs 74,846 crore, or 4.5% of the target for the full year.

In the last financial year, the deficit was 6.71% or Rs 15.86 lakh crore, lower than revised estimates of 6.9% on better tax revenue recovery. Government finances are already strained with an increase in the fertilizer subsidy of Rs 60,939.23 crore for the first six months of this financial year.

While subsidizing cooking gas for the poor would cost the government Rs 6,100 crore, reducing excise duty on petrol and diesel alone would cost Rs 1 lakh crore. In addition, the government expects revenue loss of Rs 10,000-15,000 crore due to recalibration of iron, steel and plastic tariffs.

Finance Minister Nirmala Sitharaman had last month announced cuts in excise duty on petrol by a record Rs 8 per liter and on diesel by Rs 6, and said beneficiaries of the Ujjwala scheme will receive a subsidy of Rs 200 per cylinder for 12 cylinders in one year to help ease some of the burden stemming from rising cooking gas tariffs to record highs.

A 14.2 kg LPG cylinder costs 1,003 rupees in the national capital. Beneficiaries of Pradhan Mantri Ujjwala Yojana will receive a grant of Rs 200 directly to their bank account and the effective price for them would be Rs 803 per 14.2 kg cylinder.

In March 2020, the Center had launched the programme, Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), to provide free food grains to over 80 million beneficiaries covered by the National Food Security Act (NFSA) as part of its efforts to reduce hardship for people during the coronavirus pandemic. The Center provides 5 kg of grain free of charge per month under this programme.

The extra free grain exceeds the normal NFSA quota at a heavily subsidized rate of Rs 2-3 per kg.

(Edited by : Anand Singha)

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