Food Bill will push up deficit to 5% of GDP this year: survey

Implementing the United Progressive Alliance government's food security bill will bring additional fiscal pressure and push up the fiscal deficit to five per cent of GDP in the current financial year, says a report by the Federation of Indian Chambers of Commerce and Industry.

"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 five per cent for 2013-14, which is slightly above the budgeted 4.8 per cent," said FICCI's Economic Outlook Survey, released in New Delhi on Sunday.

The survey respondents felt that allocating food through the public distribution system is plagued with inefficiencies and this needs to be overhauled.

Earlier this month, the government promulgated an ordinance to implement the Food Security Bill, giving over two-thirds of the population the right to 5 kg of grain each month at the subsidised rates of Rs1-3 per kg.

The programme is estimated to cost the government Rs1,25,000 crore annually for supplying about 62 million tonnes of rice, wheat and coarse cereals to 67 per cent of the population.

The economists participating in the survey expect the country's GDP to grow by around six per cent during the current fiscal.

"Some grave concerns remain and these would have to be handled promptly to get economy back on growth trajectory," the report said.

It further 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 survey also said GDP will grow by five per cent during the first quarter of the fiscal.

FICCI said the depreciating rupee will impact the widening current account deficit (CAD). For the first quarter of the current financial year, the CAD to GDP ratio is projected at five per cent, though it may lessen 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.

The CAD hit a record high of 4.8 per cent in the 2012-13 fiscal.

The survey further asked the Reserve Bank of India to cut 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.