According to Nomura Holdings Inc., India’s move to restructure the world’s largest food program is a fiscally prudent and politically astute move.
The rollback of the free food plan has always been politically sensitive, but the simultaneous rebalancing of the public food distribution system is making political selling easier, Nomura economists Sonal Varma and Aurodeep Nandi wrote in a report to clients on Tuesday.
The move is particularly significant given the busy political calendar in 2023, with state elections set to be held in Karnataka, Chhattisgarh, Madhya Pradesh, Rajasthan and Telangana, and parliamentary elections in the summer of 2024, they added.
The government last week scrapped a version of a free food program for low-income households announced in April 2020, replacing it with the new initiative, which also gives out free grain while reducing the amount. Nomura estimates that the move will result in subsidy savings of 0.16 percent of gross domestic product in the three months to March.
The fiscal impact of these announcements is “positive” and should help the government meet its deficit target of 6.4 percent of gross domestic product in the current fiscal year, the economists said. They expect a deficit target of below 6 percent for the next fiscal year starting April 1, but such a consolidation target would be “difficult” given weaker growth, they added.
“If the government can stay on track on its spending on food subsidies, it should help mitigate one of the risks,” the economists wrote.
The end of the free food grain program should help bring food grain inventories back above buffer norms and ease pressure on open markets for procurement. This, in turn, should help ease inflationary pressures on grains, they added. Bloomberg News