Decoding FM Sitharaman’s funding strategy for Rs 2.05 lakh cr free foodgrain scheme

The government has cut the allocation for urea and nutrient-based subsidy. And, it has left the outlay for the MGNREGA unchanged

The budget allocation for the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) at Rs 2.05 lakh crore tops the list of government’s 170-odd schemes, which ranges from Swachh Bharat Mision to PM Kisan.  

Announced initially for a limited period of three months till June 2020 after the Covid outbreak, the PMGKAY has seen multiple extensions. Last November, the Cabinet led by the Prime Minister Narendra Modi decided that the central government would provide free foodgrains to approximately 813.5 million beneficiaries under PMGKAY for a five-year period starting from January 1, 2024, at an estimated cost of Rs 11.80 lakh crore over five years.

The scheme is for ration card holders under the National Food Security Act, 2013 (NFSA). The NFSA, introduced by the Congress-led UPA government, used to provide subsidised foodgrains. Since PMGKAY is now a five-year scheme, the government has merged the NFSA with it.  

The food subsidy to the Food Corporation of India (FCI) under the NFSA was around Rs 1.97 lakh crore in Budget 2023-24.

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Now, let’s delve into the food subsidy or the free foodgrain funding strategy of FM Nirmala Sitharaman.

Take, for example, the Mahatma Gandhi National Rural Employment Guarantee scheme (MGNREGA). The budget estimate for MGNREGA remains unchanged at Rs 86,000 crore for 2024-25, the same as the previous fiscal year. The allocation for MGNREGA has consistently decreased since the first Covid year, 2020-21, when it peaked at an all-time high of Rs 1.11 lakh crore. It decreased to Rs 98,468 crore in the second Covid year, 2021-22, and further to Rs 90,806 crore in 2022-23, reaching Rs 86,000 crore in 2024-25.

This indicates a savings of Rs 25,000 crore from MGNREGA, suggesting a shift from the rural employment guarantee scheme to free foodgrains as a safety net.

The allocation has also decreased for urea subsidy and nutrient-based subsidy (NBS). The NBS allocation halved from Rs 86,122 crore in 2022-23 to a budgeted Rs 45,000 crore in 2024-25, with revised estimates for 2023-24 at Rs 60,300 crore. Similarly, the urea subsidy decreased from Rs 1.65 lakh crore in 2022-23 to a budgeted Rs 1.19 lakh crore in 2024-25, with revised estimates for 2023-24 at Rs 1.28 lakh crore.

There is a significant decline in compensation to service providers for the creation and augmentation of telecom infrastructure. The actual expenditure was Rs 53,500 crore in 2022-23, with a reduced allocation of Rs 10,400 crore for 2023-24, and the revised estimate figure dropped to only Rs 2,000 crore. The budget estimate for 2024-25 remains at Rs 2,000 crore.

Following the Covid crisis, the government introduced a guaranteed emergency credit line facility for MSMEs. As the financial strain on MSMEs has eased, there is not much allocation for this scheme, with actual expenditure at Rs 10,500 crore for 2022-23 and revised estimates at Rs 14,000 crore for 2023-24, compared to the budgeted Rs 14,100 crore. The allocation is maintained at Rs 10,163 crore for 2024-25.

There are also no significant increases in the allocation for roads and the National Highways Authority of India (NHAI).

The road works allocation remains at Rs 1.09 lakh crore for 2024-25, compared to a revised estimate of Rs 1.08 lakh crore in 2023-24, with actual expenditure at Rs 75,821 crore in 2022-23. Similarly, the allocation for NHAI is maintained at Rs 1.68 lakh crore for 2024-25, compared to revised estimates of Rs 1.67 lakh crore in 2023-24, with actual expenditure at Rs 1.41 lakh crore in 2022-23. There are no aggressive outlays for NHAI in the current budget.