BOB Report: Government spending on subsidies expected to exceed budget projections in FY2025, claims report

New Delhi| Government spending on subsidies is expected to be around Rs 4.1-4.2 lakh crore in fiscal year 2024-25. This amount is even higher than the budget estimates. Bank of Baroda has said this in a report. According to the report, the main reason for the increase in subsidy burden is the government spending more on food and fertilizer subsidies. This expenditure is expected to exceed the budget allocation.

“The total subsidy burden is expected to increase to around Rs 4.1-4.2 lakh crore in FY25″, the report said. However, the subsidy burden may be reduced to around Rs 4 lakh crore in the next financial year”. The government had set a budget estimate (BE) of Rs 3.8 lakh crore for major subsidies including food, fertilizer and petroleum for FY25.

After increasing the MSP of Rabi crops, expenditure on subsidy increased
According to the Bank of Baroda report, the budget allocation for Rabi crops for the marketing season 2025-26 is likely to be more than around 10 per cent after the Minimum Support Price (MSP) increases. Apart from this, high cost of storage and transportation is also increasing the subsidy expenditure. The report pointed out that the budget for fertilizer subsidies alone could increase by 9-10 per cent. The reason for this increase is the strengthening of the dollar, because it has increased the cost of imports.

Government is providing more financial assistance to stop retail inflation
According to the report, to prevent retail inflation from rising, the government is providing more financial assistance. Due to this, the total subsidy burden is estimated to reach Rs 4.1-4.2 lakh crore in FY 2025. Some relief is expected in FY26, however, as the government is expected to rationalize subsidies in the coming budget. The total subsidy burden is estimated to be reduced to around Rs 4 lakh crore in the next financial year. It is believed that there will be a big decline in food subsidy and it is kept limited to between Rs 2-2.1 lakh crore. On the other hand, fertilizer subsidy is expected to remain at Rs 1.7-1.8 lakh crore due to continued pressure of import costs.

The report also talks about the government’s gross borrowing target for FY25. The report sets it at Rs 14.01 lakh crore, while net borrowing is estimated at Rs 11.63 lakh crore. Despite savings in spending areas, the government can reduce its dependence on small savings by setting borrowing targets. In FY26, net borrowing is expected to be reduced to Rs 10.8 lakh crore, while gross borrowing, including repayments of Rs 4.2 lakh crore, is estimated to be around Rs 15 lakh crore.