Budget 2024: India may allot Rs.4 lakh crore for next year’s food, fertilizer subsidies

Interim Budget: India plans to allocate about 4 trillion rupees ($48 billion) for food and fertilizer subsidies in the next fiscal year. The Ministry of Consumer Affairs, Food and Public Distribution estimates the food subsidy bill to be 2.2 trillion rupees, a 10% increase from the current fiscal year. Additionally, the fertilizer subsidy for the next fiscal year is expected to be 1.75 trillion rupees. Prime Minister Narendra Modi is expected to win a third term in the upcoming elections.

budget expectations: India may earmark about 4 trillion rupees ($48 billion) for food and fertilizer subsidies for the next fiscal year, two government sources said, indicating fiscal caution ahead of this year’s general election.

The Ministry of Consumer Affairs, Food and Public Distribution has estimated next year’s food subsidy bill at 2.2 trillion rupees ($26.52 billion), the two sources said. That is 10% higher than a projected outlay of nearly 2 trillion rupees ($24.11 billion) for the current 2023-24 fiscal year.

Additionally, next fiscal year’s fertilizer subsidy is expected to be 1.75 trillion rupees ($21.10 billion), down from the current 2022-23 fiscal year estimate of nearly 2 trillion rupees, one of the sources said.

The sources, which are directly involved in the decision making on the subsidies, did not wish to be named as they were not authorized to speak to the media.

Finance Minister Nirmala Sitharaman will unveil the 2024/25 budget on Feb. 1.

The Ministry of Consumer Affairs, Food and Public Distribution declined to comment while the Ministry of Finance and the Ministry of Chemicals and Fertilizers did not reply to requests for comment.
Maintaining the combined subsidies at their current level would be unusual for a government facing a national election in just a few months, but Prime Minister Narendra Modi is widely expected to win a rare third term in elections scheduled for April and May.
Also, containing food and fertilizer subsidies is crucial for managing India’s fiscal deficit, which Modi’s government is targeting at 5.9% of gross domestic product this year and planning to lower by at least 50 basis points in the fiscal year 2024/25.

The food subsidy bill is likely to go up next year as Modi’s administration late last year extended its flagship free food welfare program for the next five years.

India runs its multi-billion dollar food welfare program, the world’s biggest such initiative, by buying rice and wheat from millions of domestic farmers at state-set minimum or guaranteed prices and then supplying the staples for free to 800 million Indians.

Interim Budget 2024 may see modest expenditure hike as Centre looks to stay on fiscal glide path

Budget 2024: The government aims to limit the increase in overall spending to around 10% in the interim budget for FY25, balancing the need for sustained growth with fiscal consolidation imperatives. It plans to achieve this by raising capital expenditure at a slower pace, while moderately increasing revenue spending. The government has set a fiscal deficit target of 4.5% of GDP by FY26 and expects to meet the target this year.

Interim Budget Expectations: The government may limit the increase in its overall spending to around 10% in the interim budget for FY25, from the budget estimate for this year, as it aims to balance the need for sustained growth with fiscal consolidation imperatives, people aware of deliberations said.

Budget can ignore fiscal largesse that doesn’t necessarily impact election outcome, says PwC’s Ranen Banerjee

The government is expected to stick to fiscal prudence in the interim budget, with a 5-10% increase in budget line item allocations. Confidence should be provided that fiscal deficit targets will be met, with reductions in food and fertilizer subsidies. Positive signaling on fiscal spend, including increased allocation for capex, is anticipated. Divestment targets are likely to be modest in the interim budget but significantly enhanced in the full budget. India’s macroeconomic situation for FY 2024.

Budget expectations: Ranen Banerjee, Partner and Government Sector Leader of PwC India, says that several past instances and even the most recent elections have shown that fiscal largesse does not necessarily impact the outcomes of an election and hence the government will likely stick to fiscal prudence without any major option.

Source : Economics Time 17 January 2024