Critics fear the $20 billion program could weaken India’s economy.
By Rajiv Theodore
NEW DELHI: The passage of the Food Security Bill – worth nearly $20 billion – in the Lok Sabha, had a dampening impact on Tuesday’s markets as the stocks fell 3% and the rupee slid to an 18 year-old historic low of 66.24 against the dollar raising concerns over the country’s mounting fiscal deficit which could blow out even further if the bill becomes a Law after its passage in the upper house or the Rajya Sabha.
Prime Minister Dr. Manmohan Singh’s coalition government last month had resorted to an executive order to implement the program, which the Congress party hopes will help win it a third consecutive term in power. The next election is due in May.
The main opposition, the Bharatiya Janata Party (BJP), says the cheap food scheme is still too narrow to tackle widespread malnutrition among India’s millions of poor. Other critics have also dubbed the new plan a waste of public money at a time when growth has been steadily slowing. The Bill guarantees 5 kg of rice, wheat and coarse cereals per month per individual at a fixed price of Rs. 3, 2, 1, respectively, to nearly 67% of the population.
The expanded subsidy is a pet project of Congress leader Sonia Gandhi, who led the party to victory in the last two elections on the back of populist programs such as a rural jobs plan and a $12.5 billion farmer loan waiver passed just before the 2009 general election.
Historian Ramachandra Guha in his essay titled– A Short History of Congress Chamchagiri, which is a part of the book Patriots and Partisans, says,’’ India as a nation has made big mistakes on the economic and the financial front in the nearly 66 years that it has been independent, but the passage of the Food Security Bill, might turn out to be our biggest mistake till date.’’
Nitin Pai, Director of The Takshashila Institution, writes in a column “The scheme is open-ended: there’s no expiry date, no sunset clause. It covers around two-thirds of the population—even those who are not really needy. This means that the outlays will have to increase as the population grows.” The weakest point of the right to food security is that it will use the extremely “leaky” public distribution system to distribute food grains.
The Finance Minister P Chidambaram had earlier allayed fears saying that the Food Security Bill will not have a negative impact on the fiscal deficit.
“The government can afford a vast new food program for the poor despite concern about its impact on the strained public finances,” Chidambaram said.
“The government has budgeted an additional Rs. 230 billion annually for the program on top of the existing 900-billion-rupee food subsidy bill,” he added.
Yet the comments failed to sway investors, with market watchers skeptical about India’s ability to attract funds for infrastructure projects in an economy growing at a decade low of 5 per cent.
The rupee has already been beaten down around 15 per cent so far in 2013 despite frantic attempts by the government and central bank to shore it up.
Overseas investors have sold about $810 million worth of shares in the previous seven sessions through Monday, adding to pressure on the rupee.