India to Spend $24 Billion on Free Grains for 800 Million People

(Bloomberg) -- India will provide free grains to about 800 million people for one year, a move that could help the ruling party reap political benefits and set the tone for Prime Minister Narendra Modi’s reelection for a third term.

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The government will spend 2 trillion rupees ($24.1 billion) on the program, Food Minister Piyush Goyal said after a cabinet meeting on Friday. The new initiative will replace an earlier drive of highly-subsidized food grains for eligible people in the world’s second-biggest producer and consumer of wheat and rice.

In addition to the subsidized grains, the government was giving away 5 kilograms of wheat or rice every month to millions of Indians since the beginning of the pandemic. After multiple extensions in the past, it is now set to expire at the end of the month. Many consumers may now restart buying the grains from the open market, potentially raising prices and posing fresh challenges to the central bank’s efforts to cool inflation.

The latest announcement comes ahead of polls in several states in 2023 and the general election in 2024. The free food program, started in 2020 to cushion people from the economic devastation caused by Covid-19, is believed to have helped the ruling Bharatiya Janata Party in winning elections in some major states. Although very popular, it put pressure on the government’s already-strained finances, forcing it to go for higher market borrowings amid a wide budget gap.

After the restructuring in the world’s biggest food program, the government’s subsidy bill next year is expected to be lower than an estimated expenditure of more than 3 trillion rupees in the fiscal ending March 2023. However, it will be double of about 1 trillion rupees that was being spent on food subsidy before the pandemic.

As food security concerns gripped the world amid rising commodity prices, India tried to ensure the availability of affordable food grains in the world’s second-most-populous nation. It restricted exports of wheat and rice this year after erratic weather hurt harvest, adding to pressure on food prices, and rattling global agricultural markets.

--With assistance from Siddhartha Singh, Preeti Singh, Ruchi Bhatia and Abhijit Roy Chowdhury.

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