Ahead Of 2024 Lok Sabha Polls, Govt To Increase Spending On Food, Fertiliser Subsidies And Rural Job Scheme

In a significant shift in fiscal strategy, the Indian government is gearing up to increase spending on three crucial fronts—food, fertilizer subsidies, and the rural job guarantee scheme.

This increase in expenditure is set to gain momentum in the second half of the current financial year, positioning the government to meet the fiscal deficit target for FY24, according to a senior government official, as reported by Moneycontrol.

Despite the additional spending necessitated by these subsidies, the government remains confident in achieving its fiscal deficit target of 5.9 per cent of the Gross Domestic Product (GDP) for 2023-24, as explained by the official.

The official reassured that there would be no deviation from the fiscal deficit target, emphasizing that the impact of higher subsidies would only be felt for three months.

The government's budget for the current fiscal year allocated significant sums for food and fertilizer subsidies, with a food subsidy of Rs 1.97 lakh crore and a fertilizer subsidy target of Rs 1.75 lakh crore.

However, the allocation for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was reduced to Rs 60,000 crore for 2023-24, a substantial cut from the previous year's outlay of Rs 89,400 crore.

The government's expenditure in the first half of the current financial year was less than half of what was projected (47.1 per cent) even though it had collected more than half (52.2 per cent) of its budgeted revenue from April to September.

During this period, the fiscal deficit widened to Rs 7.02 lakh crore, accounting for 39.3 per cent of the full-year target of Rs 17.87 lakh crore.

Despite this, the official stated that the government maintained its focus on capital expenditure.

Recently, it was reported that the government's capital expenditure had exceeded Rs 5 lakh crore.

The decision to extend the free food grain plan will have limited fiscal impact for FY24, with additional spending of Rs 15,000 crore for the three-month extension as per the official.

Prime Minister Narendra Modi announced the extension of India's free food grains program for five more years, just ahead of general elections scheduled for April or May 2024.

This program, known as the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), offers eligible citizens the opportunity to purchase five kg of food grains per person per month at highly subsidized prices.

Additionally, the provision of LPG cylinders at Rs 300 to beneficiaries of the Pradhan Mantri Ujjwala Yojana will incur an additional cost of Rs 3,840 crore.

However, the decision to sell wheat flour at a subsidized rate of Rs 27.50 per kg under the Bharat Atta scheme will not impact government spending, according to the official.

Furthermore, the upcoming urban housing subsidy scheme is expected to lead to an additional expenditure of Rs 3,000 crore in FY24, covering a three-month period, with a total cost of Rs 60,000 crore spread over five years.

In September, the Indian government's net tax revenue increased by 14.3 percent year-on-year to Rs 3.56 lakh crore.

This increase was attributed to a 26.6 per cent rise in corporate tax collections to Rs 2.12 lakh crore and a 15.6 per cent increase in personal income tax collections to Rs 91,247 crore, contributing to a 9.3 percent overall receipt growth in September.

According to the official, the government's cash position is strong due to a consistent flow of funds through borrowings from the bond market, even as expenditure has fluctuated.

While the government's cash position is currently comfortable, it aims to keep the borrowing program predictable for the current fiscal year to avoid surprising the bond market.