Food Security Bill to cost Rs 1.2 lk cr in subsidy: Kotak

Moneycontrol Bureau

Kotak Securities estimates the food subsidy bill for FY14 at Rs 1.2 lakh crore-33 percent higher than the budgeted amount if the Food Security Bill is approved by Parliament.

Following are the challenges that the brokerage sees in the implementation of the Food Security Bill, which many experts feel is unlikely to be passed.

* The Government will now mop up half of the marketable surplus in wheat and
rice (to say nothing of coarse cereals): we expect the Government action to distort prices.

* The Food Corporation of India (FCI) procures four-fifths of grains from two grain-bowl states of India (Punjab and Haryana) and moves them to various states; we note that logistics add a third to the procurement cost of grain.

* Excess storage over defined buffer norms has created a meaningful shortage of warehouses.

* Unique identification (UID) can help with better targeting; however, it will take at least a couple of years before it is completely rolled out in the country 

* Savings on food in rural India may stoke demand across other categories and create sustained inflationary pressures.