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Dept of Expenditure warns against extending the free food scheme: Report

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In an internal note, the FinMin's Dept of Expenditure has warned that extension of the free food scheme beyond September or any more tax cuts will have consequences for the Centre's fiscal situationNew Delhi: Union Finance Minister Nirmala Sitharaman during 'iconic week celebration' of the Ministry of Finance, in New Delhi, Monday, June 6, 2022. (PTI Photo

The finance ministry's Department of Expenditure has argued against extending the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) beyond September or announcing any significant tax cuts, warning of the consequences for the Centre's fiscal position, a  report said.

The government in March extended the PMGKAY, the free food ration scheme rolled out during the Covid-led lockdown, for six months till September. The Centre has allocated Rs 2.07 trillion for food subsidies in the current fiscal year, while the extension of PMGKAY till September is expected to increase the  bill to nearly Rs 2.87 trillion, The Economic Times reported.

If the government decides to extend the scheme further, it would cost the Centre another Rs 80,000 crore for another six months, swelling the food subsidy amount for FY23 to Rs 3.7 trillion.

Also Read: 'One Nation, One Ration Card' programme implemented across India

More tax cuts or subsidy extensions would adversely hit the fiscal math, the union finance ministry's Department of Expenditure said in an internal note. The department said, "In particular, it is not advisable to continue the PMGKAY beyond its present extension, both on the grounds of food security and on fiscal grounds," quoted ET.

The Centre's recent decisions to extend free ration, hike fertiliser subsidy, reintroduce cooking gas subsidy, excise duty cut on petrol, diesel and cut in customs duty on edible oils have created a serious fiscal situation, the department said.

The Centre's move last month to cut excise duty on fuel to soften the blow of inflation will cause a revenue loss of about Rs 1 trillion, the note said.

To curb inflation, the Centre last month announced a reduction of excise duties on petrol and diesel by Rs 8 and Rs 6, respectively. At the same time, it also announced a subsidy of Rs 200 per domestic LPG cylinder for up to 12 cylinders in a year.

For FY23, the government has budgeted a fiscal deficit of 6.4 per cent of GDP, while Fitch Ratings expect it to be 6.8 per cent due to higher subsidies and revenue loss due to duty cuts.