Page last updated at 23:00 GMT, Thursday, 2 July 2009 00:00 UK

Feeding the poor strains India's finances

By Shilpa Kannan
India Business Report, BBC World, Delhi

Pushpa's family
With many mouths to feed, Pushpa is struggling.

Finding rice to feed her family is a daily struggle for 30-year-old mother Pushpa.

Pushpa lives with her ailing in-laws, five children and her husband in a crowded slum in east Delhi.

Pushpa's husband earns about $10 a month selling herbal medicine - so several days a month, the family has to go to bed hungry.

Two of her five children have been in and out of hospitals for severe malnutrition.

In the heart of Delhi, families such as Pushpa's are registered with the government and have been issued identity cards that entitle them to subsidised rice.

But they rarely get their share.

Pushpa is angry.

"I voted this government into power but to no avail," she says. "No one is taking care of us.

"We even have our identity cards that entitle us to subsidised food. The government has promised us cheap rice and wheat, but we get nothing.

"My children are dying of hunger. How can I feed them? They keep falling sick."

Costly malnutrition

Grain market
The proposed Food security act will guarantee 25 kilograms of food grain to the poorest people at a subsidised cost
Parshuram Ray, the director of Centre for Environment and Food Security

That is why non-governmental organisations such as the Centre for Environment and Food Security are now campaigning for the government to guarantee food as a basic right to poor people.

Despite government food schemes having existed for more than 30 years, Indian malnutrition and child mortality rates are worse than in Sub-Saharan Africa.

Even in urban centres such as Delhi there are millions of people who cannot afford to eat.

By some estimates, malnutrition has led to an economic loss of $29bn a year - equivlent to almost 4% of India's gross domestic product, or GDP.

Right to food

Parshuram Ray, the director of Centre for Environment and Food Security, says almost 80% of Indians do not get enough to eat.

Chandrajit Banerjee
We want it to be more investment oriented, more infrastructure projects, simplification of tax procedures, rationalisation - rather than major cuts in taxes, which the government can't afford at this point of time
Chandrajit Banerjee, director of the Confederation of Indian Industry

"The proposed Food security act will guarantee 25 kilograms of food grain to the poorest people at a subsidised cost," he says.

"It also gives people the right to go to courts and demand their right to food. If not delivered, officials can be held responsible and it will be a punishable offence."

A law that guarantees food security can be life-changing for poor people.

But it is the implementation of this law that is worrying industrialists.

While nobody disagrees with the law, its cost might exceed $10m.

Add that to the existing welfare schemes, such as the National Rural Employment, the fertilizer subsidies, or the waiver of crop loans for farmers - as well as the fuel subsidy for Indian consumers - and the handouts bill is pretty high.

Rising spending

In April this year, total government spending reached $13.5bn, up 43% from the same period last year.

Abdul Rashid
If the government helps us with tax incentives, interest subsidies and post-export incentives, it will not just help us keep the company running, but also help our employees
Abdul Rashid, director, National Masala Mills

Critics fear that if the government continues to spend at this pace it will have huge negative implications for the Indian economy.

The borrowing target has already been raised to $76bn for this year from an earlier prediction of $62bn.

The current government has been voted in on a powerful mandate so the expectation from both people and the industry for the upcoming budget is running high.

While poor people such as Pushpa are looking for a respite from their troubles, lobby groups and industrialists are knocking on the doors of the finance ministry to make sure their voice is heard too.

India has announced three stimulus packages for the industry since December. Taxes on consumer products have been cut in an effort to boost consumer demand.

But the widening fiscal deficit is still worrying the Indian Industry. Some estimate that the government is spending 7% more than it is getting in from taxes and other income sources.

Such a 7% fiscal deficit would be the highest in 19 years.

Investment budget

As a result of the government's financial constraints, industry expects less assistance in this budget.

Spice factory
Exporters want credit subsidies kept in place.

Chandrajit Banerjee, director of the Confederation of Indian Industry, says industry will look at the budget in a manner where you get the benefits without much of a fiscal stimulus.

He says that Budget 2009-10 should be an "investment budget" to enable India to deal with the global economic crisis and aim at leading the economy to a growth rate in excess of 8% in the coming year.

"Therefore we want it to be more investment oriented, more infrastructure projects, simplification of tax procedures, rationalisation - rather than major cuts in taxes, which the government can't afford at this point of time."

Cheap credit

But smaller companies are worried.

Women drinking tea
The failure to feed the poor is costing vast sums every year.

National Masala Mills is an exporter of Indian spices to the Middle East, UK and Africa.

In its factory on the outskirts of Delhi, hundreds of women are employed to clean, sort and grade their spices.

The air is heavy and pungent as women dressed in bright red tunics are cleaning baskets of red chillies.

The chillies are then machine ground and filled into sacks ready to be exported.

The global economic crisis has been a huge blow to National Masala Mills.

So the company has high hopes that the upcoming budget will provide them with a stimulus package.

Company director Abdul Rashid says they support more than 4,000 families in procuring raw material, manufacturing and marketing their spices.

"If the government helps us with tax incentives, interest subsidies and post-export incentives, it will not just help us keep the company running, but also help our employees," he says.

Exporters are usually provided credit at a rate that is some 2.5 percentage points below the prime lending rate (PLR) of banks.

But this arrangement comes to an end on 30 September this year. So Mr Rashid wants an extension of interest subsidy for the sector to help access cheap credit and remain competitive.

Huge drain

Back in the Delhi slums, Pushpa and her neighbours settle down for their evening prayers.

As they huddle together singing Hindi hymns thanking god for their daily bread, children line up for free sweets at the end of the session.

Many others hope Pranab Mukherjee, India's finance minister, will hand out sweeteners of his own.

But feeding its people and funding its industry is going to be huge drain on the country's treasury.

And it remains to be seen whether the finance minister can deliver the economic miracles that millions of people want.



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