Prime Minister Narendra Modi will soon decide whether to expand the food amount that has cost India $44 billion since the pandemic, or to ease the strain on government finances and food supplies.
Modi is giving 5 kgs of wheat or rice to 800 million Indians every month since April 2020 in a program of about Rs 1.5 trillion. The scheme, which was launched to meet the country’s long-standing sales during the pandemic subsidized grainScheduled to expire at the end of September.
The finance ministry is not in favor of expanding the program as it puts pressure on a budget deficit that has started shrinking to a record low during the pandemic, according to people with knowledge of the matter. The final decision will be taken by Modi’s office, which is also considering other options, such as keeping the freebies for at least one more quarter until the festive season and local elections go on, the people said, discussing the matter in private. Asked not to be identified.
Modi is facing an unusual situation; Handing out free food to ease the plight of millions in one of the world’s fastest growing economies, highlighting the government’s struggle to spread the benefits of India surrounded by high unemployment, income inequality and populist politics.
Stopping the food program will not be an easy option for Modi. His Bharatiya Janata Party is trying to retain power in Himachal Pradesh as well as in Modi’s home state of Gujarat, where assembly elections are due by the end of this year.
“If you stop these, it will definitely have some negative impact on people’s voting preferences,” said Professor Sanjay Kumar from Center for the Study of Developing Societies, New Delhi. A large number of voters who benefited from the free food scheme had voted for the ruling BJP in Uttar Pradesh, the country’s most populous state, earlier this year, Kumar said.
popular, expensive
While the food policy is undoubtedly very popular, it is very expensive to maintain and increases the need for an abundant supply of cheap grain. This year, India has had to restrict exports of wheat and rice as the crop has been damaged due to uncertain weather, putting pressure on food prices and turbulent global agricultural markets.
People said that by running the food scheme for the next six months, 700 billion rupees will be taken out of the budget. This could pose risks to the government’s target of limiting the fiscal deficit to 6.4% of GDP in the fiscal year ending March 2023, up from 6.9% earlier and a record 9.2% in the first year of the pandemic.
It is also possible that the Prime Minister’s Office will cut the size of freebies given, the people said.
Food Secretary Sudhanshu Pandey said on Monday, “These are big decisions on which the government will take a decision. I cannot say anything at the moment.” When asked to confirm its position on the issue, a Finance Ministry spokesperson declined to comment, while the Prime Minister’s Office did not respond to an email seeking comment.
food prices
According to analysts at ICICI Securities Ltd led by Prasanna Ananthasubramaniam, “the continuation of this plan could lead to exhaustion of foodgrain stocks by next year.” One option for the government would be to “take a leaf from the central banks and ‘taper’ the free food grains scheme,” he said.
The decision on the program can also affect inflation. Prices of rice and wheat, which account for about 10% of India’s retail inflation, are rising due to low production amid a heat wave and poor monsoon. Price gains in the South Asian nation have been hovering above the central bank’s 6% threshold since the start of the year.
If the program ends, consumers will have to buy grain from the market, potentially raising prices further and posing a new challenge to the central bank’s efforts to quell inflation.
“This is a big dilemma for Modi,” as he has to take decisions based on factors such as balancing the economy, setting an example to end the freebie culture in the country and sacrificing electoral dividends from the scheme, the new Aarti Jerath from Delhi said- based writer and political analyst. “It’s really a tough call for them.”
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