Subsidy Expenditure Sees Significant Decline in FY24; Further Reduction Expected in FY25

The Union government’s expenditure on explicit subsidies, including those for food, fertiliser, and LPG, is anticipated to decrease by 21% to Rs 4.13 trillion in the current fiscal year, down from Rs 5.24 trillion in FY23. However, for the fiscal year 2024-25, the interim budget has allocated Rs 3.81 trillion for subsidies, reflecting an 8% decrease compared to the revised estimate for FY24.

This decline can be attributed to several factors, including the softening of global prices for soil nutrients and the cessation of extra grain supplies under the National Food Securities Act (NFSA) effective December 2022. The revised estimate for total spending on these subsidies in the current fiscal stands at Rs 4.13 trillion, with Rs 2.12 trillion allocated for food and Rs 1.88 trillion for fertilisers.

In FY23, the government expended Rs 2.72 trillion on food subsidies due to additional food grain provisions under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), alongside highly subsidised food grains supplied under NFSA during the first three quarters of the fiscal year.

The PMGKAY, which was merged with NFSA from January 2023, entails supplying around 48 million tonnes of food grains annually free of cost to 800 million beneficiaries. The extension of the free ration scheme until the end of 2028 is estimated to cost the exchequer approximately Rs 11.8 trillion due to projected annual increases of 7%-8% in the minimum support price (MSP) of rice and wheat, among other expenses.

Finance Minister Nirmala Sitharaman, in her interim-budget (2024-25) speech, highlighted the elimination of concerns regarding food security through the provision of free ration (PMGKAY) to 800 million people.

Furthermore, the fertiliser subsidy is projected to decline by 25% from a record Rs 2.51 trillion in FY23 to Rs 1.88 trillion as per the revised estimate for FY24. For the upcoming fiscal year, subsidies for soil nutrients are estimated at Rs 1.64 trillion.

Meanwhile, with the expansion of 7.5 million additional LPG connections to be released under the Pradhan Mantri Ujjwala Yojana within three years, the total subsidy outlay for LPG in the current fiscal year is estimated at Rs 12,240 crore. For the next fiscal year, the budget has allocated Rs 11,925 crore for LPG subsidies.