National Advisory Council urges cheap grains for masses

A labourer pulls a plastic sheet to cover sacks of paddy from rain at a grain market in Chandigarh January 13, 2010. The National Advisory Council headed by Sonia Gandhi recommended boosting food subsides, a plan which, if implemented, could widen the budget deficit but secure voter support for the ruling party.

NEW DELHI (Reuters) - The National Advisory Council (NAC) headed by Sonia Gandhi recommended on Saturday boosting food subsides, a plan which, if implemented, could widen the budget deficit but secure voter support for the ruling party.

The council suggested widening subsidies to 75 percent of the billion-plus population to Prime Minister Manmohan Singh who is struggling with stubbornly high food prices that threaten to erode the Congress' political support.

If the government takes it into account, it would form part of a food subsidy bill that could be debated in parliament when it sits next month, and it is unlikely to garner much opposition.

India already provides cheap grains and pulses to nearly 180 million poor or low-income families through a public distribution system that will cost nearly $12 billion in the year to end-March 2011, accounting for about 1 percent of GDP and 5 percent of total government spending.

But the government is pushing for a law to subsidise grains to partly shield a substantial voter base from surging inflation in a country where about 40 percent of the 1.2 billion population lives below the U.N. estimated poverty line. NAC is helping the government draft the bill.

"Legal entitlements to subsidised foodgrains should be extended to at least 75 percent of the country's population - 90 percent in rural areas and 50 percent in urban areas," the NAC said in a statement.

The bill contrasts with Congress' push to liberalise the economy, but the government hopes it will build a food safety net for the poor to help cushion the blow of other reforms such as lifting pricing controls on fuels, which will likely raise inflation.

While the bill is seen as easing some voter anger over high food prices and giving the Congress an edge in state elections this year and next as well as federal elections in 2014, it will impact government finances.

The proposed food security act could nearly double to as much as $23 billion the food subsidy bill from targeted levels, potentially derailing plans to cut the fiscal deficit.

The government wants to bring down the fiscal deficit to 5.5 percent of GDP in FY2010/11 from 6.9 percent in the previous financial year.

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

It asked the government to categorise poor households and said the subsidy levels should remain unchanged till 2017. All targeted households have to be covered by 2014.

Many fear a new food security scheme may also bypass the intended beneficiaries. Tonnes of grains are also wasted due to inadequate supply chains and lack of storage facilities.

But the real challenge to widening a subsidised food scheme is an uncertain output from the country's rain-dependent agricultural sector. Growth in India's grain output has fallen back in recent years.

(Editing by Miral Fahmy)