FY26 food subsidy may exceed budget estimate by Rs 22,000 crore
India’s food subsidy for FY26 is set to exceed the budget estimate of Rs 2.03 lakh crore by over Rs 22,000 crore, mainly due to FCI holding 70.4 MT of rice and wheat—far above buffer requirements. High stock maintenance and MSP-related costs are driving subsidies, with PMGKAY supplying 810 million people.
The government’s food subsidy budget for the current financial year is likely to exceed the budget estimates (BE) of Rs 2.03 lakh crore by over Rs 22,000 crore due to the rising cost of holding surplus grains far in excess of what is needed for minimum support price operations for paddy and wheat.
Sources told FE the Food Corporation of India (FCI), through which over 70% subsidies are routed, has revised upward the projected expenditure from Rs 1.4 lakh crore (budget estimate) to Rs 1.65 lakh for 2025-26.
The rest of the food subsidy is routed through those states who have opted for a decentralized procurement system.
With a projection of over 15% increase in FCI’s food subsidy budget, overall subsidy burden under the he Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) or free ration scheme is likely to cross Rs 2.25 lakh crore, highest since the previous high of Rs 2.72 lakh crore expended in FY23.
FCI resorts to borrowing in light of surplus grain stock
Despite having received Rs 57,678 crore, or 40% of its annual food subsidy allocation from the finance ministry so far in FY26, the FCI has had to avail a short-term loan of Rs 37,560 crore in the current fiscal. The borrowing was necessitated by the high economic cost of operations driven by FCI’s surplus grain stock.
At present, FCI holds 70.4 million tonne (MT) of rice (37 MT) and wheat (33 MT) against a buffer of 30.77 MT – rice (10.25 MT) and wheat (20.52 MT) – for October 1. This grain stock excludes over 11 MT of rice receivable from the millers to FCI while the new paddy procurement season for 2025-26 season (October-September) commences next month.
FCI might struggle to handle rice stock
If the stock is not diluted in the open market, there is a possibility of huge challenges in terms of handling rice stock by FCI and surplus stocks are expected to inflate the government’s food subsidy bill.
Correspondingly, the FCI’s economic cost for rice and wheat for 2025-26 as per budget estimate to increase to Rs 41.73/kg and Rs 29.80/kg, respectively, up from Rs 40.42/kg and Rs 28.50/kg in 2024-25.
However, the economic cost, including minimum support price (MSP), storage, transportation and other costs will have revised upward at the revised estimate level by the end of FY26.
Under PMGKAY, 810 million people are currently being provided 5 kg each of specified grains per month free of cost. The free ration scheme is being extended till the end of 2028 and it would cost the exchequer Rs 11.8 trillion.
“Higher procurement of grains against the requirements are adding up to economic costs despite the government liquidating some stocks through open market sale,” an official said.
Annually the corporation supplies around 36 – 38 MT of rice and 18 – 20 MT of wheat under the free ration scheme while the procurement has been over 50 MT for the last many years leading to piling up of stocks.
Officials said that for the last few years the agencies are buying over 76 MT of rice and wheat annually while the requirement under the PMFBY is around 56 to 58 MT.
Sources said that open mark sales this year is likely to surpass last fiscal year’s record sale of 4.63 MT.
Over 4.19 MT of rice from the FCI stocks have been offloaded in 2025-26 so far at subsidised rates through various initiatives including open market sale as well as supplies for ethanol manufacturing as well as special scehme of the state.
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Source : Financial Express
