Budget 2024: Spending On Major Subsidies To Reach Rs 4.1 Lakh Crore In FY25, Say Economists

Government's spending on major subsidies in fiscal 2025 is seen as 'flattish' as commodity prices are expected to remain benign through most of the upcoming fiscal, according to economists.

According to early estimates of the subsidy bill, the government will spend around Rs 4.1-4.2 lakh crore on major subsidies in FY25, with food subsidies taking the lead, economists told NDTV Profit.

That is little changed from the subsidies in the current fiscal, which are expected to be largely restricted to around Rs 4.1 lakh crore. Major subsidies include expenditures on account of food, fertiliser, and fuel, better known as petroleum subsidies.

The government's budget estimates for FY24 on major subsidies stood at Rs 3.74 lakh crore. However, in December, the government sought supplementary demand for grants worth Rs 29,600 crore in total for the above-mentioned major subsidies. This brings the governmental subsidy in the current year to a higher-than-budgeted level of Rs 4.04 lakh crore.

IDFC First Bank's India economist Gaura Sengupta expects the year to end at Rs 4.1 lakh crore for the three major subsidies against the current governmental ask of Rs 4 lakh crore, led by higher food, fertiliser and LPG subsidies in the first supplementary demand for grants.

The bill for the major subsidies in FY24 may exceed the originally budgeted estimate of Rs 3.7 lakh crore by Rs 40,000 crore on account of an overshoot across food, fertiliser and fuel subsidy heads, said Aditi Nayar, chief economist at ICRA Ltd.

This, according to Nayar, is only marginally higher than ICRA's estimates at the beginning of the financial year. "Although the food and fertiliser subsidies are set to be in line with our estimates at the beginning of the year, the fuel subsidy is pegged to be higher on account of the increase in the subsidy amount on LPG cylinders in October 2023."

In October 2023, the government hiked the LPG subsidy to beneficiaries under the Ujjwala yojana to Rs 300 per cylinder from the previously announced Rs 200 per cylinder.

Sengupta pegs the current year food subsidy spend to cross Rs 2 lakh crore to Rs 2.12 lakh crore and the total fertiliser bill to up to Rs 1.88 lakh crore. On petroleum subsidy, she told NDTV Profit that it would reach Rs 11,500 crore for the full year.

"The higher food subsidy bill is due to the higher minimum support price. Fertiliser subsidies were higher than the budget estimate due to higher input costs and consumption. The full impact of the fall in global energy costs will be felt in FY25. Meanwhile, the LPG subsidies are marginally higher due to the price cut where the government has borne the cost for Ujjwala Yojana consumers."

ICRA expects the total subsidy—food, fertilisers and fuel—bill to remain largely 'flattish' in FY2025, in line with the higher-than-budgeted amount for FY2024. "We expect global commodity prices to remain benign through most of FY25. However, any spikes in commodity prices could lead to an increase in the subsidy burden, particularly for fertilisers, in the fiscal," Nayar said. 

The subsidy bill will, at the end of the current year, present a realistic picture for the next fiscal, according to Madhavi Arora, lead economist at Emkay Global Financial Services. "Our early estimate is that it (FY25 subsidy bill) should stay closer to Rs 4.1–4.2 lakh crore, led by food subsidy. We don't expect a big upside, despite a possible increase in the minimum support price of food grains. We expect that fertiliser subsidies will even out any increases to the overall major subsidy bill as global prices have cracked, and we'll see it settle in the upcoming year," she told NDTV Profit.

Arora expects that food subsidies will remain closer to 0.7% of the GDP, and the aim will be to contain major subsidies within 1.5% of the GDP. "Given that the actual value figures are nominal, they will increase in proportion to the GDP, and we expect major subsidies as a percentage of the GDP to remain stable in the near term."

Sengupta of IDFC First Bank added that the factors influencing her early estimation of Rs 1.93 lakh crore for food subsidy and Rs 1.91 lakh crore for fertiliser subsidy in the upcoming year include:

• The discontinuation of the PMGKAY and its replacement with a consolidated scheme will reduce the food subsidy bill.

• The LPG subsidy bill is expected to be higher with the extension of the Rs 300 per LPG cylinder price cut for Ujjwala Yojana consumers for the full 12 months.

• The fertiliser subsidy is expected to be moderate, as the full impact of the drop in global energy prices will be felt in FY25.