'Food security legislation to put pressure on public finances'

Allocating food through PDS plagued with inefficiencies; ensuring efficiency in delivery system required

Implementation of food security legislation will impose pressure on public finances and push up the fiscal deficit to 5% of the Gross Domestic Product in the current financial year, said a Ficci report.

"...It will impose an additional pressure on the fiscal situation and would make fiscal sustainability plan of the country difficult to achieve. As a result, the expected fiscal deficit to GDP ratio is 5% for 2013-14, which is slightly above the budgeted 4.8%," it said.

It said allocating food through public distribution system (PDS) is plagued with inefficiencies and ensuring efficiency in the delivery system is required.

On July 3, the government decided to promulgate an ordinance to implement the Food Security Bill to give nation's two-third population the right to 5 kg of foodgrain every month at highly subsidised rates of Rs 1-3 per kg.

The programme when implemented will be the biggest in the world with the government spending estimated at Rs 1,25,000 crore annually on supply of about 62 million tonnes of rice, wheat and coarse cereals to 67% of the population.

Further, the survey said decline in industrial output, widening current account deficit and a depreciating rupee may dampen the growth prospects the country if adequate supportive action is not taken.

The economists participated in the survey expects that India's GDP will grow by about 6% during the current fiscal. "Some grave concerns remain and these would have to be handled promptly to get economy back on growth trajectory".

The FICCI's Economic Outlook Survey also said during the first quarter of the fiscal, the GDP will grow by 5%.

"Respondents expect IIP to grow at a moderately faster pace of 3.3% in FY14 vis-a-vis 1.1% growth witnessed last year," it added.

It asked the RBI to cut the key policy rates to boost the economic growth.

"A majority of the participating economists anticipated a 50-75 basis points cut in repo rate by end of this fiscal year," it said, adding, a fall in repo rate will give elbow room for banks to reduce deposits as well as lending rates.

Further, it said that depreciating rupee will impact the widening CAD.     For Q1 of FY14, CAD to GDP ratio is projected at 5% and it may temper in the second half of the fiscal.

"Financing CAD will be the real challenge this year as global liquidity will be under pressure," it said adding rupee is expected to touch 56 by end of March.

High imports strain the Current Account Deficit (CAD), which hit a record high of 4.8% in the 2012-13 fiscal.

CAD occurs when total imports of goods, services and transfers is greater than the exports.