The Government has agreed a draft law that will expand supply of cheaper grains to its poor, a plan if ratified by parliament could widen the fiscal deficit but secure voter support for the ruling Congress party and its allies.
The National Food Security Act, an election promise of the party, could ease voter anger at near-10% inflation and give the government a political breather at a time when it is struggling with corruption scandals and policy paralysis.
The draft bill is also expected to give the government a better idea on how much grain India will have left over for exports after maintaining comfortable buffer stocks in a rural economy heavily dependent on the annual monsoon rains.
On the flip side, the bill will weigh on efforts to meet a fiscal deficit target of 4.6% in 201112 by nearly doubling India's annual food subsidies to about $23 billion or 2% of GDP.
It could also perpetually lock the government into costly subsidies to ensure steady supplies of rice, wheat and coarse grain from domestic production or imports.
Here are a few key facts about the bill which is likely to be introduced in parliament later this year and approved without much opposition:
- It seeks to cover about 67.5% of India's 1.2 billion people, expanding an existing food subsidy scheme that covers about 180 million of India's poorest people who receive about 4 million tonnes of grain every month through licensed "fair price shops". It is not clear if the proposed law will subsume the existing quota to avoid overlap.
- About 70% of Indians live in rural areas, forming the core voter base of political parties. Nearly 75% of the rural population, or 630 million people, and 50% of urban people, or 180 million people, will be eligible to receive grains at cheaper rates.
- The beneficiaries are divided into "general" and "priority" households with the latter recognised as the more vulnerable group but yardsticks for this have not been decided yet. The bill identifies 46% of the rural beneficiaries and 28% of urban beneficiaries as "priority" households. About 40% of India's population live below $1.25 a day.
- The "priority" group will get rice at a fixed 3 rupees a kg, wheat at 2 rupees a kg and coarse grain at 1 rupee a kg. The general category, both in rural and urban areas, will get grains at half of the price the government sets for payment to farmers.
- The annual requirment for rice and wheat under the proposed act will be at least 45.6 million tonnes, calculated on a monthly outlay of 3.8 million tonnes. India's rice and wheat inventories at government warehouses on September 1 stood at 56.3 million tonnes, more than double a target of 26.9 million tonnes. Inflation has stayed stubbornly high over the past year despite overflowing granaries, showing that Indian staples such as rice and wheat are not to blame for high food prices.