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Food rights bill holds key to India farm exports plan
India's grain bins are overflowing and the forecast for a normal monsoon promises another bumper crop, but political disagreement over a bill to secure food rights for the poor means the country is expected to steer clear of large-scale exports.

Shipments from the world's second-biggest producer of wheat, sugar and rice could come as a relief for governments across Asia who are trying to combat food-led inflation, but India needs to know how much to put aside for the food security bill before taking any decision on overseas sales.

"Ensuring supplies to the government's welfare schemes are more important than allowing exports for private trade," a senior food ministry official told Reuters on condition of anonymity because of the political sensitivity of the issue.

"Exports will be allowed after assessing local demand. The food security bill will spell out the demand for food grains."

But there is little clarity on when the food bill, an election promise from the ruling Congress party, could be ratified by parliament.

Prime Minister Manmohan Singh wants to introduce the bill in parliament this year but members of the National Advisory Council (NAC), which is helping the government draft the bill, and finance ministry officials think the target is too ambitious.

The NAC, headed by Sonia Gandhi, the powerful chief of the Congress party, has suggested widening subsidies to 75 percent of the billion-plus population. India currently provides subsidised grains to about 30 percent of its people.

But the finance ministry and the planning commission, which charts India's economic development, are seeking a lower number of beneficiaries, mindful of its impact on the country's plans to cut the fiscal deficit to a targeted 4.6 percent in 2011/12.

India will also need to weigh concerns about persistently high food inflation, currently just under 9 percent, against leaving stores to rot when global prices are near record highs.

And then there is the uncertainty of monsoon forecasts. "Betting on a favourable monsoon you may get it right, but what if you get it wrong? Will the opposition spare you if you have to go and buy at current global prices?" a senior leader of India's Congress party, which heads the country's coalition government, told Reuters.

A failed monsoon could force India into the international markets as a buyer, as happened in 2009, when India suffered its worst drought since 1972 after initial forecasts had called for normal rains. That year, India had to import sugar, driving up global prices to their highest in three decades.

LARGE EXPORTS UNLIKELY

Wheat reserves have swelled to more than double the government's target of 8.2 million tonnes, and rice output is expected to be well above demand, prompting industry and trade to demand that export curbs are lifted.

Exports of all but small amounts of special quality rice remain restricted, while on wheat a decision is still pending after the farm minister called for lifting the ban. A panel of ministers headed by India's finance minister, Pranab Mukherjee, is yet to take a call on allowing wheat exports.

But huge domestic stocks are seen by an inflation-hit government more as an insurance against high global prices than an impetus to sell overseas, analysts said.

US wheat futures leapt about 47 percent last year as inclement weather in various places, including the Black Sea region, slashed global supplies. This year, prices are down about 8 percent, but investors have been coming back to the market on crop weather concerns in the U.S. and Europe.

Traders said Indian wheat prices were around $300 per tonne free on board, while importers such as Japan and Iran are currently importing U.S. wheat at around $360 a tonne, indicating competitiveness of Indian wheat.

"Even within the government there is disagreement - the farm ministry wants exports, the food ministry doesn't because it is worried about inflation," said political commentator Paranjoy Guha Thakurta.

"Until you have clarity over the food security bill you will not have free flowing exports."

The NAC wants the poorest of families to be given 35 kg (77 lbs) of rice at 6 US cents a kg a month, with those a bit better off to be given 20 kg.

About 40 percent of India's 1.2 billion population lives below the U.N. estimated poverty line. India currently needs around 4 million tonnes of grain every month to sell to the poor at cheaper rates.

The proposed food law could double the nearly $12 billion in the year to end-March 2011 -- about 1 percent of gross domestic product and 5 percent of total government spending -- that India spent to provide cheap grains and pulses through a public distribution system.