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LATEST NEWS UPDATES | Food subsidy bill likely to rise by Rs 6,000 cr in FY11 by Prabha Jagannathan

Food subsidy bill likely to rise by Rs 6,000 cr in FY11 by Prabha Jagannathan

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published Published on May 4, 2010   modified Modified on May 4, 2010


THE government will need to shell out Rs 6,000 crore more in food subsidy to support poor families under the proposed Food Security Act due to the revised estimate of the number of poor families in the country.

Food subsidy will account for about 1.1% of the gross domestic product in the current fiscal year, compared with 0.9% last year, said a study by Deutche Bank. The Union budget has provided just Rs 55,578.18 crore for food subsidy, compared with Rs 56,002 crore (revised estimates) spent in 2009-10.

While the Planning Commission estimates pegged the number of families below the poverty line at 65.2 million, the recently accepted Tendulkar Committee report says there are 74 million such families. The Tendulkar committee has put the annual subsidy bill at Rs 52,800 crore, Rs 6,200 higher than the plan panel estimate of Rs 46,600 crore.

Under the Food Security Act, the government will have to provide 35 kg of grain monthly to each of the 74 million poor families in the country at Rs 3 per kg. The annual amount to be spent on each of the families is estimated to be Rs 7,140. These findings come against recent assertions by sectoral analysts that the share of food subsidy to poor families — below poverty line or BPL and consumer families of the Antyodaya Anna Yojana) — has plunged to 80% of the total subsidy under the targeted public distribution system in 2008-09, compared with 82% in 2007-08 and 84% in 2006-07.

“The increase in the BPL family headcount as well as the wider scope for per capita subsidy will clearly raise the food subsidy bill going forward,” the Deutche Bank study said.

The quantity and prices at which foodgrain is being made available to these target groups under the PDS are more generous than what was initially proposed. “As a result, the overall cost of the initiative will rise on a per capita basis,” the study said. The recent policy initiatives that raised the number of eligible households under the subsidy umbrella and a hike in the per capita subsidy portion (to 35 kg) would raise both total food spend and the fiscal deficit from official projections, the study said.

Food subsidy bill—the difference between the economic cost of holding grain and the issue price to consumers — has already trebled from 2002-03 levels as the former has increased persistently over the last few years while the latter has remained unchanged since 2002. Moreover, the government’s procurement of grain has increased substantially and at a higher economic cost in the last three years, pushing up grain buys sharply since 2007-08.

The study has made these projections on the premise that the Centre’s food subsidy bill for FY 2009-10 could be actually be as high as Rs 72,200 crore, a good 30% higher than the revised estimates.

SUBSIDY BILL

Over 2-fold increase in food subsidy since FY2004-05. As a % of GDP, official food subsidy levels in FY2009-10 remained the same as in FY 2004-05, at 0.9%

Allocation for food subsidy in FY2010-11 - Rs 55,578 crore

Allocation for food subsidy as a % of GDP in FY2009-10 - 0.9%

Food subsidy released in FY2008-09 - Rs 43,668 crore

Food subsidy released to FCI in FY2008-09 - 84%*

Subsidy released to states in FY2008-09 -16%*

* Calculated as percentage of total food subsidy released


The Economic Times, 3 May, 2010, http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETD/2010/05/03&PageLabel=11&EntityId=Ar01103&ViewMode=HTML


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