Government Extends Free Foodgrains Programme for Five More Years
The government has announced that it will extend its free foodgrains programme for another five years. As part of the programme, the government will provide 5kg of food grains per person every month. This decision comes amidst concerns about the challenges of withdrawing populist policies, particularly with upcoming elections, according to economists.
The extension of the free foodgrains programme is not expected to have a significant immediate impact, as it is already included in the government’s existing subsidised foodgrains programme. However, economists are worried about the medium-term risks associated with the extension. Nomura, a leading financial services company, predicts that the government’s food procurement cost and food subsidy bill will increase as a result.
While the need for subsidised grains for lower-income households is undeniable, there are concerns that the announcement of free schemes can lead to competitive populism and pose risks to the economy.
Prime Minister Modi has announced that the free foodgrains programme will be extended until December 2028. This programme allows eligible citizens to purchase 5kg of food grains per person per month at highly subsidised prices. During the pandemic, an additional 5kg of food grains were provided free of cost under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). The recent announcement solidifies this policy for the medium term.
The extension of the free foodgrains programme can be attributed to political considerations, especially with upcoming elections. Populism has become a prominent theme, with promises of “freebies” from various political parties. The ruling Bharatiya Janata Party (BJP) is also embracing a populist approach to counter its rivals. However, the change in approach was necessary due to the unsustainability of the previous system, which resulted in high fiscal costs and complicated procurement.
While the fiscal impact for the current year is manageable, the government will lose revenues from subsidised food sales, and the food subsidy bill is expected to increase over time. However, the extension is not anticipated to have a significant inflationary impact as it is unlikely to strain cereal stocks.
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