PMGKAY Extension May Cause Fiscal Stress If Foodgrain Prices Rise, Experts Warn

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The Indian government’s decision to extend its flagship food subsidy scheme, the Pradhan Mantri Gareeb Kalyan Ann Yojana (PMGKAY), by five years is likely to put pressure on its finances. The scheme, which guarantees free foodgrains to 800 million poor Indians, is expected to add to fiscal pressure in the coming years, especially if the procurement cost or minimum support price (MSP) of grains rises, causing the subsidy bill to balloon.

Experts say extending the scheme for another five years could result in additional expenditure of over ₹1 trillion. The amount will rise substantially if foodgrain prices are revised regularly under the MSP programme.

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.

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Overall, while experts remain hopeful of the government meeting its fiscal deficit target of 5.9% of GDP, they say the extension could keep food-subsidy costs higher and reverse the trend of falling food subsidies.

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