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November 29, 2022

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Finance Ministry’s red flag expanding the free meal scheme

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Finance MinistryThe Department of Expenditure has argued against expanding free food After september, do ration scheme or something big tax deduction, warning of consequences for the financial position of the government. The government expanded the Pradhan Mantri Garib Kalyan Anna Yojana (Pradhan Mantri Garib Kalyan Anna Yojana) in March.PMGKAY) from six months to September.

The government has kept a budget of ₹ 2.07 lakh crore for food. subsidy In FY23, lower than the revised ₹2.86 lakh crore for FY22. With the extension of PMGKAY till September, the subsidy bill is expected to increase to about ₹ 2.87 lakh crore. Extending the scheme by another six months could cost Rs 80,000 crore in FY13, taking the food subsidy to about Rs 3.7 lakh crore.

The department said in an internal note seen by ET that any further tax cuts or food subsidy expansion could have adverse financial math consequences. “Specifically, continuation of PMGKAY after its present extension, on food security and financial grounds, is not justified,” the department said.

The note said that recent decisions like extension of free ration, increase in fertilizer subsidy, reintroduction of subsidy on cooking gas, reduction in excise duty on petrol and diesel and cut in customs duty on edible oils and various inputs have taken a serious toll. financial situation has arisen. Situation. The reduction in excise duty on petrol and diesel last month to ease inflationary pressures is expected to result in a revenue loss of around Rs 1 lakh crore.

slope

The government has budgeted a fiscal deficit of 6.4% of GDP for the fiscal year 2013. Fitch Ratings expects it to be 6.8% of GDP due to loss of revenue due to higher subsidies and duty cuts. In its monthly economic review for May released on Tuesday, the finance ministry’s department of economic affairs said that rationalization of revenue expenditure has become important to protect growth-supporting capital expenditure, but also to avoid fiscal slippage. Granted, higher fiscal deficit can widen the current account. loss.

PMGKAY started during lockdown

PMGKAY is a free food grain scheme which was launched by the government in March 2020 during the first nationwide lockdown imposed to contain the COVID-19. Under this scheme, 5 kg free rice or wheat and 1 kg whole gram is provided. Individuals to over 810 million people per month in addition to the subsidized rations already provided under the National Food Security Act.

The department pointed out that, apart from fiscal considerations, the move was also not justified from the point of view of the country’s food security.

An eligible family of five gets over 50 kg of grain – 25 kg of grain at a nominal price of 2 or 3, and 25 kg free. This is more than necessary when there is no pandemic, the note said.

“It is important that large subsidy increases/tax cuts are not made,” the Department of Expenditure said in its note.

duty cut

On May 21, the Center slashed excise duty on petrol and diesel by ₹8 and ₹6 per liter to curb inflation, and a subsidy of ₹200 per gas cylinder for up to 12 cylinders to Pradhan’s nearly 90 million beneficiaries. announced. Minister Ujjwala Scheme. Later in the month, duty on edible oil was cut. The Finance Ministry has estimated a revenue loss of over ₹1 lakh crore due to these measures for the current financial year. The fertilizer subsidy bill is estimated to be Rs 2.15 lakh crore in FY 2013 as against the budget provision of Rs 1.05 lakh crore.

Experts have warned that the fertilizer subsidy bill could rise further if global prices continue to rise due to geopolitical factors.

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