The NFSA provides needy people with free food for a year.

The Cabinet agreed on Friday not to extend the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY, often known as the free ration plan), beyond December. However, the government would deliver grains free of charge to the 813 million recipients under the National Food Security Act (NFSA) in 2023.

The change is economically reasonable, considering that the cost of the PMGKAY, which provides larger amounts of grains to the same groups of individuals, is substantially more than the cost of making NFSA grains completely free.

According to experts, the increased food subsidy spending owing to Friday’s decision will be roughly Rs 25,000 crore, based on the economic cost of grains. In instance, extending PMGKAY for one year would have cost the exchequer Rs 1.6-1.7 trillion.

The government supplies 5 kilogrammes of food grains each person every month at heavily subsidised rates under the NFSA. Rice costs Rs 3 per kg and wheat costs Rs 2 per kg to NFSA recipients. In addition, Antyodaya Anna Yojana (AAY) households receive 35 kg of food grains every month.

In a statement to media, Minister of Food and Public Distribution Piyush Goyal stated that the Centre will bear the full responsibility of supplying free food grains under the NFSA.

According to him, the yearly cost to the exchequer is projected to be Rs 2 trillion. This is about the entire amount spent on food subsidies in 2023.

Since its inception in April 2020, in the midst of the first Covid-19 wave, the free ration plan has cost the exchequer around Rs 3.91 trillion. Except for the time between December 2020 and April 2021, the plan has been running continuously from its inception, with many extensions. The most recent extension was for three months, ending December 31, 2022.

Under the PMGKAY, 800 million individuals receive 5 kg of food grains for free each month. Of fact, free grains have been delivered at heavily subsidised prices in excess of the NFSA’s customary allotment. So far, the Centre has distributed 111.8 million tonnes of foodgrains to states and union territories under the free rationing plan.

While the fiscal cost of PMGKAY is estimated based on the economic costs of the grains, the real cash cost, after taking into account the open market sale price of the grains, will be a fraction of that.

The Cabinet decision also addressed worries about a possible decline in India’s grain inventories, notably wheat stocks.