India Said to Keep Subsidy Aim as $21 Billion Food Bill Approved

India will retain its budgeted food-subsidy estimate even as the government expands supply of cheap grains at a cost of about $21 billion annually, two Finance Ministry officials with direct knowledge of the matter said.

The subsidy will remain at about the 900 billion rupees ($15 billion) estimated in February for the year ending March 2014, the officials said, asking not to be identified citing rules. That’s because the landmark Food Security Bill approved yesterday will apply for only about half the fiscal year, with all the supplies available unlikely to be taken up, they said.

The policy to provide low-cost grains to about two-thirds of India’s 1.2 billion people is a key plank of the government’s re-election strategy ahead of polls due by May next year. At the same time, Finance Minister Palaniappan Chidambaram has pledged to pare the fiscal deficit to a six-year low of 4.8 percent of gross domestic product in 2013-2014, seeking to avert a credit-rating downgrade.

“We don’t expect a substantial fiscal impact of the bill in 2013-2014 as it is likely to be implemented only in phases initially and since three months of the fiscal year have already passed,” Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai, said in a note. At the same time, the legislation in the longer term could push up food-subsidy expenditure and stoke price pressures, she said.

The bill involves estimated spending of 1.25 trillion rupees in a full financial year at current prices, according to a briefing document from the government. Prime Minister Manmohan Singh is seeking to build on vows to help the poor in a nation where more than 800 million people still live on less than $2 per day, according to World Bank figures.

Efforts to pare the budget shortfall are part of a push since September by the Congress party-led coalition to revive an economy that grew a decade-low 5 percent last fiscal year.

India’s budget and current-account deficits have weighed on the rupee, which has weakened more than 8 percent against the dollar in 2013, the most after the yen in a basket of 11 Asian currencies tracked by Bloomberg.

Before it's here, it's on the Bloomberg Terminal.