India says can afford food-for-poor scheme as rupee falls

India’s finance minister insisted on Tuesday the government could afford a vast new food programme for the poor designed to “wipe out” malnutrition despite concern about its impact on the public finances.

By (AFP)

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Published: Tue 27 Aug 2013, 3:10 PM

Last updated: Tue 7 Apr 2015, 3:16 PM

An Indian rice vendor waits for customers in front of rice sacks at his roadside shop in Kolkata. AFP

The rupee skidded in morning trade to a new record low of 65.71 against the dollar and stock markets fell 2.56 percent after the lower house of parliament passed the Food Security Bill.

The legislation, a flagship programme of the ruling Congress party with a budgeted annual cost of around $19 billion, is intended to “wipe out” endemic hunger and malnutrition in the aspiring superpower.

Once passed by the upper house and approved by the president, it will reform India’s existing food distribution system, providing five kilograms of heavily subsidised food grain per month to more than 800 million people.

“After providing for the food security bill, we will remain within the limit I have set for myself in the budget,” Finance Minister P. Chidambaram told reporters at a press conference in the capital.

The government has budgeted an additional 230 billion rupees annually for the programme, taking the total food subsidy bill in 2013-14 to 1.25 trillion rupees ($19 billion) according to a government statement.

Chidambaram, who has been seeking to reassure investors about India’s finances, reiterated that a public deficit of 4.8 percent of gross domestic product remained a “red line” that would not be crossed this year.

India’s central Reserve Bank of India has previously warned that increased public spending stemming from the food bill could deepen the government’s deficit and stoke already elevated inflation.

“The broad sentiment for the rupee is still weak. The food bill will be a strain on the government finances,” said Siddhartha Sanyal, chief India economist with Barclays Capital.

Congress party chief Sonia Gandhi told MPs in parliament on Monday that the food bill would send a “big message” to the world that India “is taking the responsibility of providing food security of all its citizens”.

“Our goal for the foreseeable future must be to wipe out hunger and malnutrition from our country,” the Italian-born 66-year-old added.

Sonia Gandhi was later taken to hospital before voting took place, sparking another health scare two years after she underwent surgery in the United States for an undisclosed illness.

She was discharged overnight after a check-up, with a party leader saying she had been suffering from a fever and was exhausted after “working under tremendous stress”.

Despite decades of fast economic growth, India still struggles to feed its 1.2-billion population adequately with more than 40 percent of children under five malnourished, according to a major survey last year.

Critics of the food programme say India can ill-afford a costly new welfare scheme at a time of slowing economic growth and see it as a cynical ploy to win votes ahead of national elections next year.

India’s economic growth has slumped to 5.0 percent on an annual basis, its slowest rate in a decade. New data for the first quarter of the fiscal year is due on Friday.

Opponents also argue that the extra resources required by the programme — another 5 million tonnes of food grains a year — will be funnelled into the notoriously corrupt Public Distribution System.

Kris Gopalakrishnan, president of the Confederation of Indian Industry, said that the public spending burden was worrying but “the larger concern is regarding the effective implementation of such a high profile and critical social agenda”.

About 240 million families already have ration cards entitling them to 35 kilograms of subsidised grains — rice, wheat-barley and maize — which they buy at low prices at 500,000 government-run Fair Price Shops across the country.

Nationwide 75 percent of rural citizens and 50 percent of urban dwellers will be covered by the Food Security Bill, with state governments required to identify those eligible.

The bill also includes provisions for extra food for pregnant women, children and lactating mothers who are entitled to a maternity benefit of at least 6,000 rupees.

The pressure on the rupee and stock markets in India came amid a wider downturn in Asian due to concerns about possible US military intervention in Syria’s escalating civil war.

The rupee, one of Asia’s worst-performing currencies this year, has fallen on fears of foreign fund outflows as the US economy picks up.

Chidambaram said on Monday that he expected the food bill to clear the upper house of parliament “in the next couple of days”. It will then need to be signed by the president to pass into law.



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