Huge subsidy problem for food security bill

A stumbling block for passage of the bill on food security is the huge subsidy burden the government will have to incur once this comes into operation.

The cabinet had earlier this week deferred a decision on the much-discussed issue on this ground.

The government's food subsidy, borne due to buying grain at a higher price and selling it at cheaper rates, is projected to swell from the Rs 60,000 crore (Rs 600 billion) in the 2011-2012 budget to Rs 95,000 crore (Rs 950 billion), a jump of 59 per cent, on this head. This is in addition to Rs 32,000 crore (Rs 320 billion) of extra expenditure needed to sustain this programme.

The annual extra expenditure is for ancillary programmes like the allowance of Rs 1,000 per month for six months to pregnant women and lactating mothers, and also for the cost of the expanded operation.

Also, with increase in the Minimum Support Price for a crop, the subsidy burden will keep up.

"As the cost of production of crops is rising, MSP can't be kept frozen. Our estimate is that it should rise by at least 40-50 per cent in the next two-three years, which means the food

subsidy will rise by that much," said Ashok Gulati, Chairman of the Commission for Agricultural Costs and Prices.

Officials said the budget of the Union agriculture ministry will also have to rise significantly from the current Rs 20,000 crore (Rs 200 billion) per year to almost Rs 100,000 crore (Rs 1,000 billion) to produce the additional grains needed to run the programme smoothly.

In comparison to this basic estimated total of Rs 230,000 crore (Rs 2,300 billion), the flagship Mahatma Gandhi National Rural Employment Guarantee Scheme currently costs the government Rs 40,000 crore (Rs 400 billion) annually.

In sum, the food subsidy will bloat on three main counts. First, the central issue price of grain.

Two, the number of entitled beneficiaries would rise significantly.

Three, the need to keep raising the MSP in line with the rising cost of production.

The number of people covered will increase from the current 61 million among the below-poverty line category in BPL to almost 90 million in New Delhi alone.

Recently, Planning Commission Deputy Chairman, Montek Singh Ahluwalia said the government will have the necessary resources to fund the bill if it could better target its other subsidies like fuel, fertiliser.