India is likely to allocate an additional 30,000-50,000 crore rupees for 2021-22 Mahatma Gandhi National Rural Employment Programme, following the announcement by the Prime Minister to continue giving free food grains to Rs 80 crore poor as the country reels under the impact of the second wave of Covid-19. 

The government’s move is aimed at alleviating the stress in the rural sector that has been hit hard with daily infections and mortality rates rising with the second wave was at its peak in May.. 

“We are aware of the stress in rural areas and that is why we are weighing increasing MNREGA allocation for this year,”

The government had allocated Rs 73,000 crore for 2021-22. The government has already increased DAP fertilisers subsidy by nearly 140% which will mean an additional burden of Rs 14,775 crore. Moreover, the federal government also announced that it will pay for 75% of immunisation cost that will take place from June 21. 

The additional spending is likely to increase the risk of fiscal deficit slippage in 2021-22, according to experts. India has pegged its fiscal deficit at 6.8% of GDP. 

“Higher spending towards free foodgrains until Diwali and wider vaccine provision, the already announced enhancement in fertiliser subsidy, as well as the likely enlargement in the MGNREGA allocation, now clearly outweigh the savings of around Rs. 1.0 trillion from the prepayment of the FCI’s liabilities in FY2021,” ICRA’s Chief Economist Aditi Nayar said. 

“This in addition to the potential sharper slippage in disinvestment inflows relative to the higher-than-budgeted surplus transfer by the RBI, suggests a high likelihood that the Government of India’s fiscal deficit will exceed the budgeted Rs. 15.1 trillion,” Nayar added. 

The second wave of coronavirus has crippled the economic recovery process forcing the Reserve Bank of India to cut its FY22 GDP growth forecast to 9.5% from 10.5%.