'FSB an implementation challenge; to raise deficit by 20bps'

The states need to identify the beneficiaries and set up the required infrastructure: Morgan Stanley

Full-scale implementation of the Food Security Bill would be a challenge this financial year, foreign brokerage Morgan Stanley said today.

"A full-scale implementation of the new food scheme in FY2014 looks challenging. The states need to identify the beneficiaries and set up the required infrastructure," a note from the brokerage said and specifically pointed out the process will take time.

Given the limited window available for implementation, the government's target to cap subsidies at 0.8% of GDP will go up by up to 0.2% of GDP this fiscal, it said, adding that the subsidies outflow will increase in the subsequent years, once the scheme is rolled out in full.

"We believe the government will need to create room for a rise in food subsidy burden by cutting its expenditure (including subsidies) in other areas to ensure that fiscal deficit management is not compromised," it said.

It may also lead to some impact on the farm sector as the Bill's focus on cereal and foodgrain production "may distort the farm production structure by not providing the right incentives for other crops such as pulses, oilseeds and cash crops," the note adds.

The Cabinet last week decided to take the ordinance route to implement the Food Security Bill, which aims to give the nation's two-thirds population the right to 5 kg of foodgrain every month at highly subsidised rates of Rs 1-3 per kg.

President Pranab Mukherjee last week signed the Ordinance that guarantees 5 kg of rice, wheat and coarse cereals per month per person at a fixed price of Rs 3, 2, 1, respectively.

The country will join select league of countries in the world that guarantee majority of its population foodgrain. At Rs 1,25,000 crore of government support, the food security programme will be the largest in the world.