The second budget of the Modi 3.0 government may feature a slightly higher subsidy allocation for food in FY26 compared to FY25, driven by rising food inflation and higher logistics costs, according to sources to Business Today Television. However, fertilizer subsidies are expected to remain stable, reflectinganticipated trends in fertilizer prices for 2025-2026.
In its post-election budget presented in July 2024, the government allocated Rs 205,250 crore for food subsidies, which was 3.34 percent lower than the revised estimate (RE) for FY24. Fertilizer subsidies were set at Rs 164,000 crore, down 13.18 percent from the RE, while fuel subsidies were estimated at Rs 11,925 crore, reflecting a 2.57 percent decrease.
However, according to the latest data and sources, the combined food and fertilizer subsidy bills have exceeded their initial allocations. The revised estimate for FY25 is projected to be 10-12 percent higher than the original allocation for these subsidies.
The increase in food subsidy requirements is attributed to concerns over food security, fuelled by fears of worsening food inflation, and the rise in minimum support prices (MSPs) for wheat and rice.
“Our food subsidy was reduced in the July budget due to the Open Market Sale Scheme,” an official stated.
For fertilizer subsidies, the government initially allocated Rs 1.64 lakh crore but later added Rs 6,594 crore in December, bringing the total to Rs 1.7 lakh crore. The cooking gas subsidy, pegged at Rs 11,925 crore, is expected to remain unchanged.
Managing these higher allocations will be challenging for the finance ministry due to fiscal pressures. Increased subsidy spending could strain the fiscal deficit, reducing the scope for developmental expenditures. Sources suggest the government may counterbalance this by slightly lowering capital expenditure or boosting revenue collections.
The government had initially pegged the overall subsidy bill for FY25 at Rs 3.81 lakh crore, but it is likely to revise this upward in the upcoming budget. A similar allocation is expected for FY26.
