The Narendra Modi government on Wednesday extended the free ration scheme for the poor by another three months, with an eye on the Assembly polls in Gujarat and Karnataka.

The decision to extend the scheme was taken at a meeting of the Union cabinet on Wednesday chaired by Prime Minister Modi, who had publicly slammed what he had called “rewadi” culture or the effort to buy votes by promising freebies terming it “dangerous for the country’s development”. The Pradhanmantri Garib Kalyan Anna Yojana as the free scheme is officially called was due to expire in September.

With the extension it would continue till December 31 and by that time, the election process in Gujarat and Himachal is expected to be over. With the additional expenditure of about Rs 44,762 crore for the latest extension, the overall expenditure under PMGKAY will be about Rs 3.91 lakh crore, I&B Minister Anurag Thakur told reporters after the cabinet meeting. The scheme provides 5 kg of wheat and rice free of cost to 80 crore poor every month.

Aditi Nayar, chief economist, Icra said: “We expect the fiscal deficit to modestly overshoot the budgeted level, following the extension of PMGKAY. The government borrowing in H2 FY23 may be slightly higher than expected.” The fiscal deficit — the difference between expenditure and revenue — was Rs 3.41 lakh crore during the April-July period this financial year. The fiscal deficit for 2022-23 is estimated at Rs 16.61 lakh crore or 6.4 per cent of GDP.

“The (PMGKAY) amount per se may not be distortionary in case other revenue heads are met. The GST collections for the Centre so far have been around Rs 30,000 crore higher (apart from the shared component). Also, other tax collections like corporation tax have been buoyant. The challenge will arise if there are shortfalls in say disinvestment or non-tax revenue,” Madan Sabnavis, chief economist, Bank of Baroda said. He said the increase in fiscal deficit will be 0.2 per cent of GDP if all other budget numbers are met.

DA up

Ahead of the Diwali festival, the cabinet has approved a 4 per cent additional instalment of dearness allowance and dearness relief to central government employees and pensioners with effect from July 1, 2022.

The move will benefit about 41.85 lakh central government employees and 69.76 lakh pensioners. The additional financial implications are estimated at Rs 6,591.36 crore per annum and Rs 4,394.24 crore in the financial year 2022-23 for the eight months from July to February. In the case of pensioners, the Centre will have to pay Rs 6,261.20 crore more per annum.