India is set to experience a significant increase in its subsidy bill for the fiscal year 2023-24 (FY24), with an anticipated surge of Rs 50,000 crore. This increase is primarily due to escalated expenditure on fertilizers, cooking gas, and food security. The government plans to manage this additional spending from savings in other areas of its Rs 45 trillion FY24 budget.
The original subsidy outgo for FY24 was budgeted at Rs 4.03 trillion, but it is now expected to rise to Rs 4.53 trillion. Despite this increase, the projected subsidy bill is still considerably lower than the previous fiscal year’s bill of Rs 5.62 trillion.
Breaking down the additional subsidy expenses, the fertilizer subsidy is likely to see the most significant rise, increasing by Rs 25,000 crore from the Rs 1.75 trillion initially budgeted for FY24. The food and cooking gas subsidies are expected to increase by Rs 15,000 crore and Rs 10,000 crore, respectively. The overall outgo, however, is considered to be at a manageable level, with the government citing successful efforts in plugging leakages in fertilizer subsidies.
In FY23, the budget for the fertilizer subsidy was initially set at Rs 1.05 trillion but was revised to Rs 2.54 trillion due to a sharp increase in fertilizer prices, partly influenced by the Russia-Ukraine war. The cooking gas subsidy, particularly the extension to Rs 300 per cylinder for about 96 million low-income households, has also inflated the LPG subsidy bill. The government, which had initially budgeted Rs 2,257 crore for the LPG subsidy this fiscal year, will seek an additional Rs 10,000 crore in the supplementary demand for grants in the upcoming Winter Session of Parliament.
The food subsidy, which reached Rs 2.87 trillion in FY23, was initially set at Rs 1.97 trillion for this fiscal year. However, higher procurement costs and the extension of the free foodgrain scheme are expected to add Rs 15,000 crore to the overall bill this fiscal year.
In terms of broader fiscal strategy, the Indian government is focused on subsidy rationalization and promoting manufacturing in India. The current expenditure for FY24 (excluding interest and subsidy) is expected to be at 7.3% of GDP, with a focus on rural employment and housing. The government aims to consolidate its fiscal deficit to 5.9% of GDP in FY24, driven by a reduction in food and fertilizer subsidies and continued buoyancy in tax revenues.
This fiscal strategy follows the discontinuation of the free food programme implemented during the pandemic peak, aiming to ensure food security for the vulnerable population. The government now provides free foodgrains under the existing public distribution system, which is anticipated to reduce the food subsidy to 0.8% of GDP. Additionally, with the normalization of global commodity prices post the Russia-Ukraine conflict, the outgo on fertilizer subsidy is expected to decline in FY24. The fertilizer subsidy in FY24 is projected to return to the pre-pandemic average of 0.5% of GDP, while the government continues the cooking fuel subsidy program, with fuel subsidies expected to remain at 0.1% of GDP. Overall, spending on subsidies as a share of GDP is expected to fall to 1.5%, down from an estimated 2.1% in FY23