Why revised estimates for FY26 showed an increased food subsidy

Higher food subsidy in FY26 RE reflects Budget support for OMSS rice sales and ethanol blending, easing FCI's borrowing burden beyond PMGKAY costs

Food subsidy in the Budget this year has been increased by almost ₹25,000 crore over the Budget estimates of FY26.

 

And the revised estimates for FY26 showed an increase of about the same amount. The Budget estimates have been kept more or less the same.

 

This is one of the sharpest increases in food subsidy since 2023-24.

 

At first glance it seems the extra provisioning has been made to cover the rising economic cost of wheat and rice and their continued free distribution under the Pradhan Mantri Gareeb Kalyan Ann Yojana (PMGKAY). But some sources said it showed the government had accepted Food Corporation of India’s (FCI’s) demand that subsidy on the sale of rice in the open market and the cost of keeping the ethanol-blending programme running should be provided for in the Budget and not passed on to the corporation to settle through its borrowing.

 

FCI sells rice and wheat under the open-market sale scheme at subsidised rates, which are much below the economic cost.

 

In FY26, as against the budgeted economic cost for rice of ₹41.73 per kg, the reserve price of rice sold through the Open Market Sale Scheme (OMSS) was around ₹28 per kg. The balance was the subsidy incurred.

 

Sources said this amounted to somewhere around ₹10,000 crore.

 

In FY26, according to the data available till January, the government allocated around 7.3 million tonnes of rice for open market sales (direct).

 

Official documents say the OMSS is a scheme under which the government sells excess stocks of wheat and rice from the central pool at predetermined prices in the open market to moderate prices.

 

Allocation for wheat under the OMSS in FY26 was much less because prices were in control.

 

In addition, sources said the government also allocated 5.2 million tonnes of damaged broken rice, not fit from human consumption, from its surplus stocks for use as feedstock in grain-based ethanol blending programmes.

 

Damaged rice was sold at a reserve price of around ₹23.50 per kg.

 

Subsidies incurred under these two heads amounted to almost ₹25,000 crore.

 

“This additional provision will mean that FCI won’t have to borrow much to meet its requirements,” an official said. 

 

He said borrowing to meet subsidy requirements was not a suitable option because the cost for it is high at 8-9 per cent.

 

“This is a welcome development and shows the government’s commitment to keep its books clear,” the official said.

 

Meanwhile, under the PMGKAY, the central government distributes 5 kg of wheat or rice free to almost 810 million beneficiaries every month.

 

As on January 1, 2026, the central government had rice and wheat stocks of around 58.40 million tonnes as against a buffer requirement of just 21.41 million tonnes. 

Decoding the move

• To cover the rising economic cost of wheat and rice
• Continued free distribution of rice and wheat under the Pradhan Mantri Gareeb Kalyan Ann Yojana
• Sources indicate that the government might has accepted demands of Food Corporation of India
• Subsidy incurred towards sale of cheap rice in the open market sale scheme
• Keeping the ethanol blending programme running
• This Budget saw one of the sharpest increases in food subsidy since 2023-24