Free ration scheme to cost exchequer at least ₹15,000 crore extra per year

PM Modi's announcement to extend free food grains scheme for 5yrs will cost ₹15,000cr/yr. Cost of rice/wheat influenced by procurement, storage & distribution. Food subsidy bill 7.5% of Union govt's revenue receipts. 80.37cr beneficiaries to get free rice/wheat/month for 5yrs. Subsidy of ₹3.45 lakh cr for 1,015 lakh tonnes distributed.

Prime Minister Narendra Modi’s recent announcement of the extension of the free food grains scheme for the next five years will cost the public exchequer at least ₹15,000 crore more each year, according to an official in the Union Finance Ministry.  

The overall food subsidy bill is governed by the economic cost of rice and wheat, which is, in turn, influenced by factors such as the cost of procurement, storage and distribution, the official said. The additional ₹15,000 crore amount is merely the income that the Union government had received every year in the past through the sale of subsidised food grains to the States for more than 80 crore beneficiaries covered under the National Food Security Act. Under the Act, rice was supplied at the rate of ₹3 per kg, wheat at ₹2 per kg, and coarse grains at ₹1 per kg.

An analysis of the economic cost of rice and wheat over the last seven years shows an average annual increase of 5.7% in the cost of the food grains.  As per the budget estimate for the current financial year, the food subsidy bill works out to ₹1.97 lakh crore, of which around ₹95,000 crore was spent up to September. The food subsidy bill accounts for about 7.5% of the revenue receipts of the Union government. 

There will be no budget impact for the current year as the provision has already been made up to December. The subsidy bill for the remaining three months of the financial year would ordinarily be handled during the early part of the next year, the official explains. The food subsidy bill has two components: storage cost, which witnesses an increase of 5%; and procurement cost, which is influenced by the minimum support prices paid to farmers, and which may change from year to year.

The Prime Minister’s announcement means that 80.37 crore beneficiaries will continue to get free rice or wheat per month for the next five years. Since January this year, the Union government has been providing food grains free of cost for NFSA beneficiaries.

Between April 2020 and December 2022, except for a break of five months (December 2020 to April 2021), as part of a COVID relief initiative, the Pradhan Mantri Garib Kalyan Anna Yojana, all NFSA beneficiaries were provided an additional 5 kg of free food grains per person per month, over and above their normal NFSA entitlement. Consequently, 1,015 lakh tonnes were distributed, involving a subsidy of ₹3.45 lakh crore, according to a 2023 August report of the Parliamentary Standing Committee on Consumer Affairs, Food and Public Distribution.