Government’s subsidy burden is expected to rise to about Rs Rs 4.1-4.2 lakh crore in the financial year 2024-25 (FY25) more than the budget estimates of Rs 3.8 lakh crore, according to a report by the Bank of Baroda.
The report said that the increase is driven primarily due to higher expenses on food and fertilizer subsidies, which are expected to exceed the budgeted allocation.
It said, “overall subsidy burden is expected to rise to approx. Rs 4.1-4.2 lakh crore in FY25. From that level, the burden is expected to come down to approx. Rs 4 lakh crore in the next financial year”.
The government had allocated a budget estimate of Rs 3.8 lakh crore for major subsidies, including food, fertilizer, and petroleum, for FY25.
The recent report, however, indicates that this allocation is likely to be surpassed by around 10 per cent, following a rise in the minimum support price (MSP) for Rabi crops for the marketing season 2025-26.Additionally, higher costs of storage and transportation are further inflating the subsidy expenses.
The report highlights that Fertilizer subsidies alone are expected to exceed the budget by 9-10 per cent. This is driven by a stronger US dollar, which has raised import costs.
The government is providing greater financial support to prevent a rise in retail prices. Consequently, the overall subsidy burden is projected to touch Rs 4.1-4.2 lakh crore in FY25.
Relief in FY26
There is some relief expected in FY26 as the as the government is expected to rationalise subsidies. The total subsidy burden is forecast to reduce to around Rs 4 lakh crore, with a major decline expected in food subsidies. These subsidies are projected to be contained between Rs 2-2.1 lakh crore.
The Union Budget for FY 2025-26 aims for a balance between fiscal consolidation and growth, with increased capital expenditure, reduced fiscal deficit, and schemes like PM-KISAN and MGNREGA. Investments in infrastructure, education, and EV charging are expected, while tax incentives and subsidy adjustments continue to support economic stability amidst global challenges.
Fertilizer subsidies, on the other hand, are expected to remain at Rs 1.7-1.8 lakh crore due to continued pressure from import costs.The report also said that the government’s gross borrowing target for FY25, set at Rs 14.01 lakh crore, with net borrowing pegged at Rs 11.63 lakh crore.
Despite savings in other expenditure areas, the government is likely to maintain this target and reduce its reliance on small savings.
In FY26, net borrowing is expected to ease to Rs 10.8 lakh crore, while gross borrowing, including repayments of Rs 4.2 lakh crore, is projected to be around Rs 15 lakh crore.
The focus is expected to shift towards limiting debt levels, aided by an anticipated rate-cutting cycle by the Reserve Bank of India, which could lower deposit rates and make small savings funds more accessible.
(With agency inputs)
