India?s food security is in danger of being compromised due to a shortage of funds, says an urgent note from the department of food and public distribution to the finance ministry.
Despite the government providing Rs 55,578 crore to finance purchase of food grains, the food ministry has said that the sum is short of another Rs 26,979 crore. The ministry estimated this bill by adding the needs of the current rabi season and the kharif marketing season starting October 1. The shortfall will impact the stocking operation of Food Corporation of India (FCI) and state agencies, the note warned.
The inflated food subsidy bill comes at a time when the petroleum subsidy bill for the fiscal is seen reaching staggering levels, with the under-recoveries of oil marketing companies estimated at over Rs 1 lakh crore at the current crude price of over $80 a barrel.
The inadequate release of funds is counter-productive, the note argues.
Since FCI and state agencies take credit to finance their operations, low provisioning will force them to roll over the loan, adding to next year?s bill. Banks charge FCI about 10.25%, and states 11.25% for this line of credit. But providing the Rs 26,979 crore spells trouble for the finance ministry, as it would have to either borrow more from the domestic debt market or make cuts elsewhere.
FCI procures grains on behalf of the government to meet its annual requirement under PDS and maintain a reasonable stock. In the last few years, the government has been increasing the procurement price of wheat and rice, but there has been no corresponding increase in the central issue price. The government?s annual spend on food subsidy has risen from 0.63% of GDP in 2007-08 to 0.90% in 2009-10 because of record procurement of wheat and rice at all-time high prices. ?The difference between allocation under food subsidy and actual requirement is seldom matched, as food grain procurement is an open-ended process. There are two main reasons for this; first, the government is committed to purchase whatever quantities is sold to it under the minimum support price mechanism and second, for stabilising prices, the government intentionally carries a huge financial burden. But, yes, if subsidy bill continues to mount for whatever reason, it is a matter of concern for all,? said Dr Ramesh Chand, director, National Centre for Agricultural Economics and Policy Research.
In 2010-11, FCI and state agencies have fixed a target of procuring 26 million tonne of wheat at Rs 1,100 per quintal. In 2009-10, an amount of Rs 52,145.44 crore was allocated under food subsidy, against a requirement of Rs 63,415.51 crore. The requirement rose to Rs 72,234.98 crore during the year because of the additional bonus of Rs 50 per quintal on paddy for kharif marketing year 2009-10, extra allocations of foodgrains for festivals, drought and floods, besides additional ad hoc allocations.
However, against this, the food ministry was allocated just around Rs 58,242.45 crore, which included supplementary grants and amount reapropriated from other budget heads towards food subsidy. The shortfall between requirement and actual allocation was Rs 13,992.53 crore.
Similarly, in 2010-2011, against a requirement of Rs 68,198 crore for food subsidy, actual allocation by ministry of finance was around Rs 55,211 crore, a shortfall of Rs 12,987 crore.