New Delhi: As it explores ways to reduce the subsidy bill and, by extension, the fiscal deficit, the government is considering increasing the price of sugar sold to poor families through ration shops, and also that of foodgrain sold to non-poor customers of such shops.

To be sure, the two are still proposals, and it is possible the government will let both be as it finds other ways to cut its food subsidy bill and ensure the deficit doesn’t exceed the estimated 5.1% of gross domestic product (GDP) in 2012-13.

Last week, the government shaved around Rs.20,000 crore off the deficit by increasing the price of diesel and limiting the supply of subsidized cooking gas. It also eased rules on foreign investment in retail stores and airlines. The moves have drawn criticism from not just the opposition parties, but even some of the ruling United Progressive Alliance’s (UPA’s) constituents, making it an inconducive environment to increase sugar and foodgrain prices. Its key ally the Trinamool Congress on Tuesday announced the withdrawal of support to the Congress-led UPA against these moves.

The specifics of the proposals involve increasing by Rs.10 the price at which sugar is sold to poor people through ration shops; the price of the subsidized sweetener hasn’t been raised since 2001-02. Wheat would be distributed to non-poor customers of ration shops at the same price at which the government acquires the grain, the minimum support price (MSP), said a government official involved in the process, who did not want to be identified.

Currently, poor families get 500-1,300g of sugar per person per month from ration shops at Rs.13.50/kg.

The committee headed by C. Rangarajan, chairman of the Prime Minister’s economic advisory council, appointed earlier this year to look into all issues related to the sugar industry had earlier suggested that sugar be distributed at Rs.25, the price the government pays mill owners. The committee will submit its final recommendations by the end of the month, Rangarajan told reporters on Tuesday.

“The retail issue price for levy sugar has remained Rs.13.50/kg since 2001-02 whereas the FRP (fair and remunerative price) has been around Rs.25. The finance ministry is eager to implement the proposals to cut down the subsidy bill,” added the government official cited above.

That’s understandable. On 15 September, while addressing a meeting of the Planning Commission, finance minister P. Chidambaram said subsidies for the current fiscal year will likely account for 2.4% of GDP, substantially higher than the 2% projected by then finance minister Pranab Mukherjee in his budget speech in March.

“The finance ministry is looking into various options to limit the subsidy, and as the prices of sugar and the foodgrain distributed in the PDS (public distribution system, or ration shops) have not been changed for years, this is one option the ministry is looking at,” the official added. “The proposal is to distribute the sugar at the FRP rate.”

The subsidy on sugar for the current fiscal year is estimated at Rs.2,302.58 crore; it was Rs.1,832.08 crore last year. The food subsidy is estimated at Rs.75,000 crore.

The second proposal under consideration concerns foodgrain, prices of which haven’t been changed in ration shops since 2002. Non-poor customers (who have so-called APL, or above poverty line, cards) buy rice and wheat at nearly one-third the so-called economic cost price. That translates into Rs.6.10/kg for rice and Rs.8.30/kg for wheat (the economic cost price, including MSP, bonus and distribution costs, isRs.18.22 and Rs.24.19, respectively).

The finance ministry believes that any move to increase these prices will not see much opposition once the legislation on food security is implemented because the Bill seeks to remove the APL category, and instead gives legal rights to cheaper foodgrain to 63.5% of the population without any categorization.

Neither proposal may fly at this time, agree government officials and politicians, referring to the current political environment. “Such a move will lead to further criticism that this government is insensitive to poor people, while offering major sops to the rich. The government has to tread cautiously,” a senior Congress leader said, speaking on condition of anonymity.

Social activist and a Supreme Court-appointed commissioner in the Right to Food campaign, Harsh Mander, said: “Instead of entering into ad hoc arrangements and complicating things, the government should go ahead and introduce the food security Bill, which will make the distribution administratively more feasible. In times of high inflation, the government should not consider a proposal to increase prices of foodgrain.”