India food subsidy law 'to cost $22 bn'

A proposed new food security law in India guaranteeing subsidised grains for the poor would cost the country an estimated 1.1 trillion rupees ($22.3 billion), an official said Wednesday. The senior food ministry official, speaking to Dow Jones Newswires on condition of anonymity, said the government planned to introduce a bill in the monsoon session of parliament, which begins on August 1. "It will be politically prudent for the government to get it (the bill) passed before Christmas," he said, adding that it would help bolster support for the government among the poor at a time of surging food prices. The cost of food is up nearly 10 percent over the year, according to the latest inflation figures, and some months have seen a spike of nearly 20 percent compared with a year ago. Last December, there were demonstrations over the price of onions, which are a staple in Indian cooking. Under the current draft of the law, anyone living under the official poverty line would be guaranteed 7.0 kilograms (15.4 pounds) of subsidised grain per month. The official said that the government was working to determine where the poverty line should be drawn. A senior ministry official who spoke to AFP on condition of anonymity said, "Nothing has been finalised yet as far as the bill is concerned." Some economists have warned about the cost of the proposed law, which would add to India's already wide budget gap unless the government finds fresh sources of income. Finance Minister Pranab Mukherjee has forecast a budget deficit of 4.6 percent of gross domestic product for the fiscal year ending March 2012, but this is based on what many analysts view as optimistic growth forecasts. "The government may cut back on development expenditure next fiscal year -- crucial to stimulate growth -- to keep the fiscal deficit in check," Madan Sabnavis, chief economist at Care Ratings, told Dow Jones. But economist Abhirup Sarkar at the Indian Statistical Institute said that the government could afford to fund the bill, even if it caused the deficit to spiral further. "I don't think the deficit is cause for concern at present. We have to prioritise a bill which will feed the poor and create a healthy labour force, which in turn will increase productivity," he told AFP. The food security law is a key part of the ruling Congress party's programme as it looks to cater to the rural poor who helped return it to power in 2009 national elections. Food prices have jumped globally because of bad weather conditions affecting harvests, rising demand and a boom in commodities futures trading. On Friday the UN Food and Agriculture Organisation warned that food inflation would continue, with the projected price for cereals expected to rise by 20 percent and meat by 30 percent over the coming decade.