India Faces Rising Subsidy Costs

According to a recent report by the Bank of Baroda, the Indian government's subsidy burden is anticipated to exceed its budget estimates, potentially reaching up to Rs 4.2 lakh crore for the financial year 2024-25 (FY25). This increase is largely attributed to higher expenses on food and fertiliser subsidies, which are expected to significantly overburden the initial budget allocation.

Key Drivers Behind the Increase

The report highlights that the initial budget estimate for major subsidies was set at Rs 3.8 lakh crore for FY25. However, factors such as the increase in the minimum support price (MSP) for Rabi crops and the stronger US dollar, which has escalated import costs, are likely to push the total subsidy bill beyond this estimate. Specifically, fertiliser subsidies alone could surpass the budget by 9-10 per cent.

Future Projections and Government Strategy

Looking ahead, the total subsidy burden is forecasted to slightly reduce to around Rs 4 lakh crore in the upcoming fiscal year, with a significant dip expected in food subsidies. Despite these challenges, the government remains committed to its gross borrowing target of Rs 14.01 lakh crore for FY25, with net borrowing pegged at Rs 11.63 lakh crore. The focus is expected to shift towards limiting debt levels, supported by potential rate cuts from the Reserve Bank of India, which could make small savings funds more accessible and help manage debt more effectively.