Budget 2019: Govt to spend 6.5% more on food subsidies in FY20; hike may not be adequate to cover cost of food welfare programme

India is poised to raise the subsidies for the world’s biggest food welfare programme by 6.5 percent for the fiscal year beginning 1 April, the smallest increase in three years, in the nation’s interim budget next month, two sources directly involved in the decision told Reuters. The government is set to earmark about Rs 1.8 lakh crore ($25.28 billion) for food subsidies next fiscal year as it tries to contain its budget deficit ahead of the next general election due by May. Its budget targets for the next two years are already under pressure because of plans to make various payments to farmers to offset low crop prices. [caption id=“attachment_5059831” align=“alignleft” width=“380”] Representational image. Reuters[/caption] The 6.5 percent increase in food subsidies might not be adequate to cover the cost of the mammoth food welfare programme, especially after a sharp increase in the price at which the government buys rice from domestic farmers, the sources said. The sources didn’t wish to be named as the budget discussions were not public. On 1 February, Finance Minister Arun Jaitley, who is currently in the United States for a medical check-up, could make these numbers public while presenting an interim budget for the 2019/20 fiscal year. Under the National Food Security Act (NFSA), India’s main food welfare plan, the state-run Food Corp of India (FCI) buys rice and wheat from farmers at a guaranteed price and the state agencies sell the staples to 67 percent of India’s 1.3 billion people at about one-tenth of the market price. The bulk of the food subsidies go towards covering the cost of buying rice and wheat from farmers at a higher price and selling these grains to the poor at highly subsidised prices. “The finance ministry officials are struggling to keep the fiscal deficit under check,” said the first source, adding more funds could be allocated in the full budget if the current government is re-elected. That budget is likely to be presented in July. The finance ministry had previously estimated next fiscal year’s food subsidies at Rs 1.9 lakh crore. Since coming to power in 2014, Prime Minister Narendra Modi has raised food subsidies, the federal government’s biggest spending after defence, by nearly 47 percent to Rs 1.69 lakh crore in the current fiscal year. But the allocations for food subsidies are still falling short, and the FCI, the main grain procurement agency, has been forced to borrow billions of dollars to run the welfare programme. Last month, the country’s top auditor said the arrears of FCI have gone up to Rs 81,300 crore by March 2017, up from Rs 23,400 crore in the 2011/12 fiscal year. Of the Rs 1.69 lakh crore allocated for food subsidies for the year to 31 March, the government had spent Rs  1.46 lakh crore until November. Follow full coverage of Union Budget 2019-20 here         To keep watching India’s No. 1 English Business News Channel – CNBC-TV18, call your Cable or DTH Operator and ask for the Colors Family Pack (inclusive of 24 channels), available for Rs. 35/- per month, or subscribe to the channel for Rs. 4/- per day. To keep watching the Leader in Global Market & Business News – CNBC-TV18 Prime HD, call your Cable or DTH Operator and ask for the Colors Family HD Pack (inclusive of 25 channels), available for Rs. 50/- per month, or subscribe to the channel for Rs. 1/- per day.