Wheat import could bloat food subsidy bill
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Wheat import could bloat food subsidy bill

Fod subsidy bill may go up by a whopping Rs 3,000 crore largely owing to wheat import, writes KA Badarinath.

india Updated: Oct 15, 2006 21:03 IST

The country's food subsidy bill may go up by a whopping Rs 3,000 crore largely owing to a targeted import of 50 lakh tonnes of wheat during this financial year, government officials say. The bloated food subsidy bill may put more pressure on vital economic indicators that are under duress owing to massive expenditure commitments made by the UPA Government, especially on social sector programmes.

"Every one lakh tonne wheat import would add to the subsidy bill by Rs 50 crore," said a senior Finance Ministry official on condition of anonymity.

Officials are banking on a possible disruption in the schedule of wheat supplies that could limit the increase in food subsidy. Finance Minister Palaniappan Chidambaram, in his budget on February 28, projected Rs 24,200 crore as the food subsidy bill for this financial year. This is against the Rs 23,200 crore forked out in 2005-06.

The Finance Ministry, in a report on central government subsidies, has pointed out that the food subsidy bill has grown more than ten-fold from Rs 2,450 crore in 1990-91 to Rs 25,800 crore in 2003-04. As a proportion of the gross domestic product (GDP), the food subsidy bill moved up from 0.5 percent to 0.98 percent over the same period.

The State Trading Corporation (STC) has already contracted the wheat supplies from international suppliers. About two million tonnes has arrived at various ports, while another three million tonnes are scheduled to arrive over the next six months.

The CIF (cost, insurance and freight) price wheat imported from international suppliers is in the range of $ 179.5 – 230 per tonne. After taking into consideration the packaging, domestic movement and margins, the imported wheat would cost Rs 1,000 to Rs 1,100 per quintal, or Rs. 10 to 11 per kg.

As against this, the government has fixed Rs 6.50 per kg as the price at which wheat would be sold to families above the poverty line through the public distribution system (PDS). Similarly, for those below the poverty line, wheat is being sold at Rs 4.15 per kg. Under the Antyodaya scheme targeting the poorest of the poor, wheat is distributed through the PDS at Rs two per kg.

The huge difference in the economic cost of wheat locally procured or imported and the sales realisation price would lead to a massive increase in the food subsidy bill, a Finance Ministry official said.

In this context, Finance Minister's proposal to limit the subsidies to small and medium farmers, farm labour and urban poor assumes significance. Prime Minister Manmohan Singh who reviewed the fiscal situation at a meeting of Cabinet Committee on Economic Affairs (CCEA) on September 29 took no decision on this proposal.

Already, unmet expenditure worth Rs 40,000 crore seem to be worrying the Finance Minister and his team. The Prime Minister recently directed key spending ministries to stick to allocated sums.

Significantly, Agriculture Minister Sharad Yadav and Rural Development Minister Raghuvansh Prasad Singh, both of whom have strong political interests in some of the poorest zones of the Hindi belt, have apparently assured the Prime Minister that they would stick to limits set in budget allocations. This assurance came at the last meeting of the CCEA.

First Published: Oct 15, 2006 21:03 IST