The government’s nod to extend the subsidised foodgrains programme beyond the September deadline — but only for three months despite the upcoming state polls — has been prompted by specific concerns flagged by the Finance Ministry that any extension beyond these three months would have meant overshooting the budgeted level of borrowing to meet the incremental expenditure.
With the decision to extend the foodgrains scheme for three months, the Centre will end up spending Rs 44,762 crore incrementally for this period, which has led to experts estimating an overshooting of the fiscal deficit to the tune of Rs 1 lakh crore.
As it is, the government is staring at an additional expenditure of around Rs 2.4 lakh crore for the food, fertilizer and cooking gas subsidies, which has not been accounted for in the Budget for financial year 2022-23.
A senior government official told The Indian Express that even with the three-month extension to the foodgrains scheme, the Centre can still maintain its borrowing target for this fiscal. “As of now, even after this decision, there are no plans to borrow more,” the official said, adding that, “approximately Rs 1 lakh crore would be extra for fertilizer subsidy, around Rs 1.2 lakh crore would be for food subsidy. There are other contingencies as well. So, earlier we were seeing this extra spending amount at Rs 2 lakh crore, now it could be around Rs 2.4 lakh crore.”
Experts said the government’s fiscal headroom could be limited. “The belief is that this number of Rs 45,000-50,000 crore (incrementally for the 3-month extension) can be managed without extra borrowing. Anything more and they will have to announce extra borrowing, despite the decent revenue trend so far,” a senior treasury official with a private Bank said.
Aditi Nayar, chief economist, ICRA, said the government’s fiscal deficit could overshoot by around Rs 1 lakh crore. “We expect the size of the fiscal deficit overshoot to be limited to around Rs 1 trillion. We expect the fiscal deficit to modestly overshoot the budgeted level, following the extension in PMGKAY (Pradhan Mantri Garib Kalyan Anna Yojana) for another three months. Government borrowing in H2 FY23 may be slightly higher than expected,” she said.
The government had budgeted Rs 14.31 lakh crore as borrowing for this fiscal. As per the borrowing calendar, it planned to raise Rs 8.45 lakh crore in the first half of FY23 and the balance in the second half of the fiscal.
In the Budget, fertilizer subsidy was estimated at Rs 1.05 lakh crore, food subsidy at Rs 2.06 lakh crore and petroleum subsidy at Rs 5,831 crore. The expense on subsides has risen in the aftermath of the rise in global commodity prices following the Russia-Ukraine war. The government’s fiscal deficit is budgeted to be 6.4 per cent of the GDP or at Rs 16.61 lakh crore for FY23.