Subsidy Bill of Food Security Bill will be 1.2% of GDP

Indian Prime Minister Manmohan Singh’s $21 billion-a-year program to provide cheap food for the poor threatens to impede the nation’s efforts to pare the widest budget deficit in major emerging countries.

The Food Security Bill enacted last week entitles about two-thirds of India’s 1.2 billion people to low-cost grains, boosting food subsidies to as much as 1.2 percent of gross domestic product yearly from 0.8 percent, Nomura Holdings Inc. said. The policy could pose a risk to Singh’s goal of cutting the fiscal gap to 4.8 percent in 2013-2014, Morgan Stanley said.

The food policy provides rice at 3 rupees (5 U.S. cents) a kilogram, wheat at 2 rupees and coarse grains at 1 rupee, under a monthly entitlement of five kilograms per person.

The administration will retain the 900 billion-rupee ($15 billion) food-subsidy estimate for the financial year ending March 2014 given in February’s budget even as it rolls out the measure, two Finance Ministry officials said.

That’s because the bill will apply for only about half the fiscal year, with all the supplies available unlikely to be taken up, they said. The legislation involves spending of 1.25 trillion rupees in a full year, the government estimates.