Widening budget deficit is forecast over plan to feed 318 million that has been criticised as a bid to boost Congress ahead of elections.
India bill for cheap food may be hard to swallow
NEW DELHI // India may soon pass a law to give millions more people cheap food, fulfilling an election pledge by the ruling Congress party that could cost Dh84.5 billion a year.
The initiative would also use up a third of the country's annual grain production.
Feeding its poor is a matter of urgency for India, home to about 25 per cent of the world's hungry poor, according to the World Food Programme, the food aid arm of the United Nations.
The National Food Security Bill, which aims to feed 70 per cent of the population, could widen India's already swollen budget deficit next year, increasing the risk to its coveted investment-grade status.
The ambitious bill, a priority for the Congress president, Sonia Gandhi, would raise India's annual spending on food subsidies by 45 per cent. It promises wheat and rice at a fraction of their normal costs to about 810 million people, expanding current handouts to 318 million of India's poorest.
But critics said the food bill was little more than an attempt to help the Congress party, reeling from corruption scandals, win re-election in a vote expected by next May.
The government has already budgeted 900bn rupees (Dh60.97bn) for the scheme in the current fiscal year ending in March. If the bill is passed, it will need to come up with as much as 1.3 trillion rupees in 2014/15, adding to a total subsidy burden that already eats up about 2.4 per cent of Gross Domestic Product (GDP).
"It is very difficult to say whether the government will be able to get the Food Security Bill passed or not, but it is definitely going to further widen the budget deficit," said DH Pai Panandiker, the head of the private think tank, RPG Foundation.
"The finance minister is already worried about the budget deficit, and it is going to add to his agony."
Reducing fuel and fertiliser subsidies would be the best way of mitigating the costs, Mr Panandiker said. Other measures would also be needed to fund the plan, which could include spending cuts and higher taxes.
The finance minister, Palaniappan Chidambaram, said in March the introduction of the new food subsidies was unlikely to happen before the middle of the current fiscal year, which started on April 1, curbing the financial cost. Mr Chidambaram aims to cut the fiscal deficit to under 4.8 per cent of GDP in the current year from around 5 per cent in 2012/13.
India is one of the world's biggest producers of rice, wheat and sugar, but it is also one of the largest consumers with a population of 1.2 billion. It exports little and builds up stockpiles to cover handouts, which are now overflowing after bumper harvests - close to 200 million tonnes a year of rice and wheat.
The law would have little effect on India's export volumes in a good crop year, but "in a year of shortage, there could be some impact" on international markets, said a Singapore-based trader.
The bill would result in rice selling at 3 rupees per kilogram to the poorest people, less than 10 per cent of current retail price, and wheat at 2 rupees a kg.
The government has estimated it would need about 61 million tonnes of grains, only 3 million tonnes more than it currently makes available, to provide the extra food, hoping better distribution systems and a clampdown on corruption would reduce wastage.
Last year only 41.4 million tonnes were distributed by state governments in cheap food schemes.
The Congress party wants to pass the bill by tomorrow when the parliament session ends.
But debate this week has been disrupted by opposition parties. They claim the government is pushing the populist move as a smokescreen to avoid defending itself over corruption scandals.