The Indian government is estimated to spend around Rs 3.9 trillion on major subsidies for food, fertiliser, and fuel in the fiscal year 2024-25. This estimate, provided by the ICRA, is 6% lower than the expected Rs 4.2 trillion for the previous fiscal year. The government’s expenditure on subsidies is a crucial aspect of the upcoming Interim Budget 2024, especially in the context of its capex push. According to analysts, the extension of free food grain to people under the National Food Security Act (NFSA) for five years will likely increase the food subsidy bill to upwards of Rs 2.0 trillion for the fiscal year 2024-25.
In addition to food subsidies, the government also subsidizes fuel and fertilisers. The ICRA estimates the fuel subsidy requirement to be around Rs 116 billion for the fiscal year 2024-25. This estimation takes into account the increase in LPG subsidy for beneficiaries under the PMUY and is slightly higher than the outgo in the previous fiscal year. Similarly, for nutrient and urea-based fertilisers, the combined subsidy requirement is estimated to be around Rs 1.4-1.5 trillion for the fiscal year 2024-25, lower than the likely outgo in the previous fiscal year.
Experts believe that the government may not allocate the full amount of the expected subsidy requirement at the outset in the Budget for the fiscal year 2024-25, and may instead calibrate the subsidy during the year, as seen in previous fiscal years.
Opinion: The allocation of subsidies is a contentious issue, with some arguing that subsidies are necessary to support vulnerable populations and ensure food and energy security. However, others argue that subsidies can be inefficient and prone to misuse, and that resources would be better directed towards targeted welfare programs and infrastructure development. The government will need to carefully balance these competing interests in its budget allocation.