PMGKAY extension may cause fiscal stress if foodgrain prices shoot up, experts say

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Narendra Modi on Sunday announced that PMKAY would be extended to the end of December 2028. It was earlier set to end on December 31, 2023. The subsidy has been included in the overall food subsidy of around ₹197,350 crore provided in the 2023-24 budget, of which ₹95,149 crore or 48% has been used as of September, as per CGA data.

With the scheme now being extended, the food-subsidy bill is expected to rise sharply as the MSPs for foodgrains rise. Experts said extending the scheme for another five years would result in additional expenditure of over ₹1 trillion. The amount will rise substantially if foodgrain prices are revised regularly under the MSP programme.

According to an analysis by Care Edge, the fincancial position of the union government has been fairly comfortable during the first half of the current fiscal, despite economic headwinds. Gross direct tax collections staged an encouraging recovery in August and September after lagging in the first four months of FY24. The government's non-tax collections have also been better than anticipated, supported by a higher-than-budgeted dividend transfer from the RBI.

A noteworthy aspect of the government's expenditure policy has been the progressive improvement in the quality of expenditure, as reflected in the ratio of capital expenditure to revenue expenditure. Overall, the government’s fiscal deficit stood at ₹7 lakh crore in the first half of FY24, or 39.3% of the budget estimate (BE). This compares 37.3% in the corresponding period of the previous year.