Budget 2024: Subsidy bill likely to be Rs 4 trillion in FY25

Stable Subsidy Bill: The overall major subsidy bill in FY25 is likely to be Rs4 trillion, similar to that in FY24E, the Emkay Global Financial Services said in its pre-budget note.  According to the report, there is a need to watch out for some targeted support about higher farm insurance and irrigation outlays, higher disbursements towards MNREGA, etc. 

The report also mentioned that to ease the purchasing cost, the government of India may also suggest export restrictions or sops on fertilizer purchases and farm inputs.

Support measures for the economic welfare of the rural/farm sector The rural/farm sector faces near-term challenges like unfavourable terms of trade, poor weather conditions, the fallout of climate change, and inflationary pressures (food and fertilizers).

While the extension of the free food scheme (PMGKAY) for five years did not materially alter the fiscal math for the current fiscal year, a floor for food subsidy spending has been created for the years ahead. There may be mild easing in fertilizer subsidies, given the fall in international fertilizer prices, but arrears from past years and the Red Sea cost impact could offset this. 

In terms of revenue expenditure, ICRA estimates the outlay for major subsidies (food, fertiliser, and fuel) at Rs. 3.9 trillion in FY2025, a modest 6 per cent lower than the expected Rs. 4.2 trillion for FY2024, which entails an overshooting from the BE of Rs. 3.7 trillion. 

Given the Cabinet’s decision to provide free foodgrains under the NFSA for five years starting from Jan 2024, ICRA estimates the food subsidy bill to be upwards of Rs. 2.0 trillion for FY2025.