Expert Zone

Straight from the Specialists

Pitfalls of the food security bill

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The food security bill will be introduced in the current budget session of parliament, more because of its populist appeal than any economic urgency. Even when the bill was discussed by the Cabinet, Finance Minister P. Chidambaram and Agriculture Minister Sharad Pawar reportedly had reservations. They had valid reasons.

Subsidized food distribution is nothing new. Already 400 million people avail of it from over 500,000 fair price shops. What the bill intends is to widen the scope of the present scheme and cover two-thirds of the population with five kg of grain per beneficiary at nominal rates.

The finance minister has provided for 900 billion rupees as food subsidy in Budget 2013. That’s about 40 percent of the total subsidies and 2 percent of India’s GDP. Under the food security bill, the subsidy for the full year would be 1.2 trillion rupees, which will take the budget deficit to 4.85 percent from 4.8 percent.

C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council has suggested that if total subsidies are contained at 1.2 percent of the GDP, there should not be any budgetary problem. That means that if subsidies on food have to increase, subsidies on other products, such as petroleum, will have to be lowered or withdrawn. Whether this financial balancing is politically feasible is anybody’s guess.

The burden of subsidies

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

At the Indian media meet at Cannes, the economist in Prime Minister Manmohan Singh came out spontaneously when he said the prices of petroleum products should find their ‘market level’. For a time at least he ignored political compulsions.

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