Bloated food subsidies push record Rs 43k-cr payment to next year

Nov 11 2013, 03:29 IST
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The subsidy demand for this year would be close to the budgeted amount of Rs 90,000 crore (Reuters) The subsidy demand for this year would be close to the budgeted amount of Rs 90,000 crore (Reuters)
SummaryThis would be a record roll-over amount, much higher than last year’s Rs 32,650 crore

takes over after the polls to foot this bill.

The government buys grains from farmers at MSPs and supplies the commodities through ration shops at subsidised rates. The difference between the economic cost — which includes the entire cost of procurement, storage and transportation — of the grains and the sale price at ration shops (also known as central issue price) is incurred by the Centre. This, and the cost of maintaining a strategic grain buffer stock and running some other welfare programmes, form the government's food subsidy bill.

So while the MSPs of paddy and wheat are fixed at Rs 1,310 per quintal and Rs 1,350 per quintal, respectively, this season, people below the poverty line are sold rice (after milling the paddy) at Rs 565 and the winter grain at Rs 415 per quintal. Importantly, the central issue prices of rice and wheat have been kept unchanged for BPL families since 2000, although the MSP of paddy has since been raised 257% and wheat 235%.

In June 2012, grain stocks with the government had reached a peak at 82 million tonnes (mt), which was nearly four times the requirement. At the start of November 2013, the stocks (mostly consisting of rice and wheat) had reached 51 mt against the norm of 21 mt.

“These are early days but there can’t be any doubt that the subsidy burden would be huge this year. The finance minister has said that while the fiscal deficit target will be met, managing of the deficit will be a challenge,” Shubhada Rao, senior president and chief economist with Yes Bank, said.

With the sharp rise in outstanding dues, the FCI, sources said, would shortly raise short-term loan of Rs 20,000 crore for meeting its cash flow requirement.

To meet the gap between government's allocation towards food subsidy and the actual cost incurred by FCI, the government took a series of measures to improve cash flow for the corporation, which distributes subsidised grains to more than 40 crore people under the targeted public distribution system (TPDS). Besides, FCI also depends on the cash credit limit of Rs 54,495 crore from 62 public sector and scheduled banks for its operations. The cash credit limit is fixed annually by the finance ministry in consultation with the food ministry.

Recently, the finance ministry turned down an

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