Rating agency Moody's has warned India that the Food Security Bill will increase the country's macro headwinds. Moody's says the Bill will exacerbate the Centre's weak finance and the subsidy bill will be 1.2 percent of the country's GDP. It also adds that it will add to the already high food inflation.
However, the government says it will not need any additional amount to be spent as food subsidy this fiscal. CNBC-TV18's Aakansha Sethi reports why North Block is confident that the food subsidy bill will not go up.
The Food Minister told CNBC-TV18 yesterday that overall subsidy bill will actually come down and that the leakages in Public Distribution System (PDS) will be plugged etc.
The finance ministry economist and analysts have put the entire burden of the Food Security Bill at Rs 1.27 lakh crore and plugging of leakages is something that has not happened in the last 60 years in the PDS systems. So there is a big question mark on how that will happen with the Food Security Bill.
The question for the Finance Ministry at this point in time is: what happens to the food subsidy in FY14? Since there is a one year implementation time for the Food Security Bill and states are going to take a lot of time for the Bill to actually get off on the ground.
Sources in the Finance Ministry say that for this year you will not need any additional subsidy on the food subsidy account. Rs 90,000 crore was budgeted, from which Rs 10,000 crore was for the Food Security Bill and that they see will suffice as far as this year is concerned.
This year the bigger problem for the fiscal deficit is actually the petroleum subsidy and not so much the food subsidy. However, next year full impact of the food subsidy bill will be faced. Hence sources in the Finance Ministry say that at that time, deregulation of urea and cuts in fertiliser subsidies in order to finance the Food Security Bill will be considered.