Release grain to cut prices; Food Bill won't pass: Experts

"The government must distribute 61 million tonne of grain stocks to lower prices, control pilferage and reduce storage costs," says Himanshu, professor of economics, JNU. In an interview to CNBC-TV18, he adds that release of grain stocks will only marginally increase the subsidy costs. He is not optimistic of the Food Bill being passed in the current Parliament session.

Siddhartha Sanyal of Barclays Capital says that the fiscal deficit can be met only by economic growth and not by hikes in fuel prices. "The delay in the hike in diesel prices is justified by the fall in international oil prices and has no significant affect on the fisc," he told CNBC-TV18. Below is the edited transcript of the discussion on CNBC-TV18 Q: In the best of times, food-grain procurement has not exceeded 61 million tonne. Will this drive food prices up? Himanshu: In 2012, the government procured little more than 60 million tonne. So, the rise in prices is not due to low procurement but inability to adequately distribute food-grain in the market which has started to create artificial supply. The moment the government releases the 60 million tonne of  foodgrain in its godowns at cheaper prices, prices in the market will come down. Q: Does the government have the logistical wherewithal to be able to supply 61 million tonne to the market? Himanshu: If the government does not distribute the 60 million tonne in its godowns, then it definitely will force prices to rise. Inability to distribute will also create problems of storage as the procurement for next year is due in the next two to three months. However, the government has the capacity to distribute all of it at one go. But what prevented this distribution till date was the uncertainty in establishing the category of people below the poverty line (BPL).
Now the government is trying to expand the category of those eligible to receive foodgrain at subsidised prices. This will open the floodgates and people will start queuing up at PDS outlets to buy food grains. This is the easiest way of distributing foodgrain to the market and thereby bring down prices. Q: So you do not expect any pressure on prices? Himanshu: Prices will fall when such as a large amount of foodgrain is distributed. Q: What happens to the current Food Subsidy Bill which the Budget so far has accounted for Rs 90,000 crore? Do you expect this to rise? Sanyal: I do not expect it to rise dramatically. Our estimates are close to Rs 95,000 crore. This had been a key promise of the UPA government, so it was more or less expected. Though the Bill may get passed in Parliament, the real expenditure on ground will not be increased immediately.
Expenditure will be increased only towards the end of the year or maybe towards the end of the fiscal. So the excess outgo will be only for a few months and on a full year basis, the subsidy will perhaps rise only marginally. Q: Ministry sources indicate that the total bill could rise to Rs 1.3 lakh crore. Do you expect it to be the bill for FY15 and not FY14? Sanyal: That is possible. In a new government, the priorities could be somewhat different. It is best not to speculate about that at this stage. At the moment, our estimate is around Rs 95,000 crore. Q: Do you agree that if the legislation was enacted and implemented, the cost to the FY14 fisc would be another Rs 10,000 crore? Himanshu: I am not optimistic that the Bill will be passed so soon. The government needs to devise a method to distribute the foodgrain to all the states. Secondly, the government needs to identify the groups that are eligible to receive the foodgrain.
Any distribution by the central government has to help in recovery because the money for procurement has already been spent and whether it shows as a food subsidy or as losses of the Food Corporation of India (FCI) is debatable. Q: Will pilferage in the PDS system increase from the estimated 40 percent? Himanshu: A number of states such as Tamil Nadu, Chhattisgarh, Orissa and Himachal Pradesh have shown that pilferage can be controlled with reduced prices and expansion of the PDS network. Q: The hike in diesel prices which was scheduled to be implemented on March 15 was announced. In just a first month after the Budget, the government has reneged its promise. How confident are you of the government sticking to this promise as well as the 4.8-percent fiscal deficit? Sanyal: If the government has not announced the hike on March 15, it might implement the hike in the course of the next seven days when the Parliament session is a bit calmer. In the longer term, it does not dramatically change the picture.
The delay in implementing the hike is also justified because in the last few weeks there has been a significant drop in international oil prices. Bridging the fiscal deficit depends on revenue collections. But if expenditure is under control, the there is little to worry about any immediate fiscal slippage.