Fiscal deficit to slip up by 50 bps on new food scheme: DBS

Government's fiscal deficit may exceed the target of 4.8 percent of GDP by 0.50 percentage points in this financial year, and money-guzzling measures like decision to push the Food Security Bill are only expected to complicate the matter, brokerage DBS Bank said. "We do not expect a repeat of last year's fiscal prudence in 2013-14...this year's deficit could exceed the target by at least 0.50 percent," the Singapore-based brokerage said in a report.

Also read: Food Security Bill is political gimmick in hurry: Rajnath

"A renewed push to bring the Food Security Bill to life and the spectre of higher fuel subsidies validate our expectations of potential fiscal slippage this year," it said. The subsidy bill will get pushed to 2.3 percent of GDP above the targeted level of 1.9 percent as a result of the additional burden coming in on the food subsidy front, the report said.

Adding further to the woes on the fiscal front is the depreciating rupee and the relative strengthening in the crude prices lately, it added. "Even though crude prices have fallen by nearly 10 percent from the year's high, the steep rupee depreciation in the period has narrowed the scale of fall to just 2 percent, minimising the benefit from lower energy prices to the fiscal balances," it said.

The Cabinet yesterday decided to take the Ordinance route to implement the Food Security Bill, which aims at giving two-thirds of the country's population a legal right to 5 kg of foodgrain every month at highly subsidised rates of Rs 1-3 per kg. With this, the country will join select league of countries that guarantee majority of its population subsidised
foodgrain.

With an estimated Rs 1,25,000 crore in subsidy outgo, and covering a whopping 75 percent of the population, the new food security programme will be the largest in the world. Since P Chidambaram returned to North Block last August, the government took to greater cuts on the expenditure to reign in the fiscal deficit number to the targeted level last fiscal. The revised estimates have shown that it came to 4.8 percent for the fiscal, much below the target of 5.1 percent.

This had the desired impact of placating the rating agency, who had been threatening of a downgrade of the country to the junk status. Fitch Ratings in fact even raised the outlook from negative to positive even though it retained the BBB- rating on the sovereign.

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