India’s Increased Subsidy Spending to Address Rising Food and Energy Costs
India is planning to increase its spending on food, fertilizer, and cooking gas subsidies to Rs. 4.1 trillion ($47.41 billion) for the fiscal year 2025 (FY25), marking an 8% rise from the previous year. This increase aims to mitigate the impact of rising food and energy costs on households. Government sources have revealed that the allocation is intended to support the rural and urban populations amid ongoing economic challenges.
Economic Context: Slowing Growth and Rural Recovery
Finance Minister Nirmala Sitharaman is set to present the budget on February 1, 2025, against the backdrop of slowing economic growth in India. While the rural economy shows signs of recovery, urban sectors and corporate investments have remained sluggish, contributing to concerns over the overall pace of economic expansion. The rise in subsidy spending is seen as a way to alleviate the economic pressures felt by households, particularly in rural areas, where the cost of living has been climbing due to inflation.
Subsidy Breakdown for FY25
The government has provided a breakdown of the planned subsidy increases, which are focused on key sectors that impact the daily lives of millions of Indians:
- Food Subsidy: The food subsidy is expected to rise by 5%, reaching Rs. 2.15 trillion ($24.86 billion). This increase is primarily driven by higher rice procurement and storage costs, which have been impacted by inflation and supply chain disruptions. The higher allocation aims to ensure food security for vulnerable populations.
- Cooking Gas Subsidy: The subsidy for cooking gas is set to more than double, increasing from Rs. 119 billion ($1.38 billion) to Rs. 250 billion ($2.89 billion). This significant rise reflects the growing cost of cooking gas, which has been a burden on households, especially in rural areas where alternative cooking methods are less accessible.
- Fertilizer Subsidy: The fertilizer subsidy is likely to remain stable at Rs. 1.7 trillion ($19.66 billion). The government aims to maintain this level to support farmers, ensuring affordable access to fertilizers, which are essential for agricultural productivity, particularly in the face of climate-related challenges.
Subsidies’ Share of National Expenditure
Subsidies are a significant portion of India’s national expenditure, accounting for approximately 8% of the country’s $557 billion annual budget. These subsidies are essential to supporting the livelihoods of millions, particularly in rural and lower-income urban areas. However, the rising cost of these subsidies presents a challenge to the government as it balances fiscal responsibility with social welfare.
Ministries’ Silence on Allocations
At the time of the announcement, the finance, food, and fertilizer ministries have yet to comment officially on the specific subsidy allocations. However, the increase in subsidies is expected to be a key point of discussion during the budget presentation on February 1, 2025, as the government seeks to address the economic pressures facing its citizens.
