Finance red flag over 38% jump in food subsidy

Finance red flag over 38% jump in food subsidy

Fiscal concern over proposed changes in Food Security Bill

The annual subsidy bill for the UPA’s proposed food guarantee law has been estimated at Rs 1,24,747.1 crore,38.6 per cent over the budgeted food subsidy of Rs 90,000 crore for next year.

An alarmed finance ministry is learnt to have red-flagged some major changes proposed in the original National Food Security Bill,sources said.

It has objected to the proposal to do away with the original categorisation of beneficiaries into priority (akin to BPL) and general (APL),with the latter being entitled to lesser foodgrains at prices higher than those fixed for the priority category.

The food ministry’s revised proposal seeks to provide 5 kg of foodgrains every month to each individual in BPL and APL households. The original proposal envisaged 7 kg every month to BPL and only 3 kg to APL individuals,that too at higher prices.


Government sources said that the Department of Expenditure,in its comments to the food ministry’s cabinet proposal,has termed the bringing of APL on par with BPL as “totally inequitious and not justified” because “BPL beneficiary’s entitlement will be reduced” while APL would get “double benefit” in the form of more grains at prices lower than originally planned.

The department has also expressed reservations against the sweeping coverage,in which 75 per cent of rural and 50 per cent of the urban population would be uniformly guaranteed heavily subsidised foodgrains.

Referring to the updated poverty estimates of 2009-10,according to which only 33.8 per cent of people in rural areas and 20.9 per cent in towns and cities are below the poverty line,the department has submitted that “it may not be desirable to cover a larger segment”.

In view of the legally binding nature of the subsidy burden that the food guarantee law will impose,the department has suggested that the proposed prices (Rs 3,2,1 per kg of rice,wheat and coarse grains respectively) “should be valid for one year” and “thereafter,the prices should be revised” in accordance with a formula that takes into account annual changes in procurement costs and other expenditures.

“This is the only way in which the scheme can be expected to be sustainable in the long run. Any attempt to keep the issue price not changed for anything beyond one year will render the scheme unsustainable,” the Department of Expenditure has cautioned,the sources said.

The food ministry is learnt to have proposed to keep these highly subsidized prices fixed for at least three years.

The finance ministry’s fiscal concerns have been underscored in the Department of Expenditure’s support to the idea of “providing one year’s time to states/UTs for preparatory work” for an efficient rollout. The department has contended that this,along with the move to do away with special category entitlements,would result in “savings” which would be “reflected in estimated requirements annually,especially for 2013-14”.

The finance ministry has set an ambitious fiscal deficit target of 4.8 per cent for 2013-14,against 5.2 per cent in the current fiscal.

There is also concern over the additional 5 million tonnes of foodgrains that would be needed as per the food ministry’s proposal before the cabinet,estimating an annual requirement of 61.23 million tonnes against the existing allocation of 56.37 million tonnes. In fact,the average annual procurement of foodgrains during the Eleventh Plan period is only 60.24 million tonnes.