It is recommended against extending the free ration system beyond H1 and enacting additional tax savings.
The spending department inside the ministry of finance has issued a warning against extending the free ration plan beyond the month of September or lowering any significant tax rates. According to the report, the fiscal health of the nation is already being put under strain as a result of additional subsidies on fertilisers and cooking gas, as well as a reduction in excise duty on automobile fuels. Any additional relief could have serious adverse consequences for the nation’s finances.
“It is imperative that significant increases in subsidies are not combined with tax reductions. According to the department’s monthly summary report for the month of May, “in particular, it is not advisable to extend the PMGKAY beyond its existing extension, both on grounds of food security and on budgetary grounds.”
“Recent decisions on continuing PMGKAY, the huge increase in the fertiliser subsidy burden (both urea and non-urea), the re-introduction of subsidy on cooking gas, and reductions in excise duty on gasoline and diesel as well as customs duty on a variety of products have created a serious fiscal situation. A worsening of the fiscal deficit, which was planned to be 6.4% of GDP, already represents an unusually high level in comparison to historical norms, and there is a potential of major unfavourable effects.
The PMGKAY was extended by the government on March 26 for an extra six months, making it available until September 2022 at an additional cost of Rs 80,000 crore. This was not taken into consideration when developing the Budget for FY23.
According to the government, each household would get a total of 50 kilogrammes of grain, of which 25 kilogrammes will be sold at a discount at a price ranging between two and three rupees (Rs. 2/Rs. 3) and the remaining 25 kilogramme “At a time when there is no epidemic, this is much above what is necessary.”
Since a result of greater subsidies on fertiliser, the free grains plan, and LPG subsidy for Ujjwala recipients in FY23, the government is looking for other sources of revenue as the excess spending beyond the estimate in the budget is expected to be over 2 trillion rupees. The lowering of excise duties on automobile fuels and customs duties on a number of other products would also lead to a loss of income of around 1 trillion rupees during the current fiscal year.
In addition to some additional borrowing, officials from the ministry of finance are counting on greater tax revenues to fund the bulk of the additional expenditures, and they are also partially counting on obtaining more resources through the government disinvestment programme in FY23.
It would appear that the statement made by the expenditure department discourages the government from extending the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) over the month of September. If the deadline were pushed again, it is possible that the government would wind up shelling out a whopping Rs 1.6 trillion to continue operating the plan throughout the current fiscal year.
Up till the conclusion of the financial year FY22, the Central Government had spent a total of Rs 2.6 trillion on the PMGKAY programme, which had been implemented as a relief initiative known as Covid-19 in March of 2020.
The National Democratic Alliance (NDA), which is currently in power, reaped the political benefits of the plan in the most recent assembly elections, which were held in five states, including Uttar Pradesh. The distribution of cost-free grains under the PMGKAY programme was at first scheduled to take place during the months of April through June of the fiscal year 21 but it was later extended all the way through the end of the year 2020.
As a response to the second wave of the pandemic, it was reinstated in May 2021 and subsequently given an extension through the end of the fiscal year 2022.
According to the programme, 814 million people are eligible to receive 5 kilogrammes of free wheat or rice per person, per month. This means that a family of five will receive approximately 25 kilogrammes of grains at no cost, in addition to the 25 kilogrammes that the family is entitled to receive at a cost of Rs 2/kg under the National Food Security Act.