NEW DELHI: India’s finance minister insisted on Tuesday the government could afford a vast new food programme for the poor, despite growing concern about public finances which drove the rupee to a new lifetime low.
The currency, which has been under sustained pressure, fell three percent to 66.30 rupees to the dollar, while the stock market tumbled 3.18 percent after the lower house of parliament passed the government’s flagship Food Security Bill.
The rupee’s plunge was the largest single-day fall in nearly two decades, analysts said.
After the day of market mayhem, Finance Minister P. Chidambaram called the financial situation “grave”.
In a bid to calm investors, he reiterated promises that the government would meet its deficit targets despite the budgeted $19-billion annual cost of the food programme.
“The absolute number indicated in the budget is a red line and the red line will not be breached,” Chidambaram told parliament.
Some economists are concerned about the financial burden of the scheme at a time when investors are pulling out of India, and even supporters say it faces problems — including a corrupt distribution system.
The food legislation, a flagship programme of the ruling Congress party is intended to “wipe out” endemic malnutrition by offering subsidised grains to 800 million people.
Chidambaram said the government had “done its sums” and the country could afford the food scheme.
But he said that India’s squabbling lawmakers would have to unite on a strategy to revive the economy.
India’s economic growth has slumped to 5.0 percent on an annual basis, its slowest rate in a decade.
Some analysts have attributed much of the sharp slowdown to parliament’s inability to pass economic measures.
“If parliament is not able to point to the direction in which the country should go, what kind of message can it send to the rest of the world?” Chidambaram said.
Chidambaram outlined a 10-point programme to revitalise the economy and restore investor confidence.
“We will do everything possible to maximise the benefits of the good monsoon, we will leave no stone unturned,” he said.
Farming’s contribution to India’s gross domestic product has fallen from 50 percent in the 1950s to around 15 percent.
But it remains vital to the economy by supporting 700 million rural Indians, and fuels demand for everything from TVs and refrigerators to motorcycles and cars.
India still struggles to feed its population adequately with more than 40 percent of children under five malnourished.
Congress party chief Sonia Gandhi told MPs in parliament on Monday that the food bill would send a “big message” to the world that India “is taking the responsibility of providing food security of all its citizens”.
Gandhi, 66, was later taken to hospital before voting took place, sparking another health scare two years after she underwent surgery in the United States for an undisclosed illness.
She was discharged overnight after a check-up.
Despite Chidambaram’s reassurances, analysts reacted negatively to the food security measure.
“The food bill will be a strain on the government finances,” said Siddhartha Sanyal, chief India economist with Barclays Capital.
“The broad sentiment for the rupee is still weak,” Sanyal added.
Investors are wary of new subsidies for a scheme seen by some as a vote-winning ploy ahead of elections next year.
Once passed by the upper house and approved by the president, it will reform India’s existing food distribution system, providing five kilos of food grain per month to two-thirds of the population.
The government has budgeted an additional 230 billion rupees annually for the programme, taking the total food subsidy bill in 2013-14 to 1.25 trillion rupees ($19 billion).
Chidambaram insisted the rupee was “undervalued” and attributed the rupee weakness to global trends which have seen emerging market currencies under pressure as the US economy picks up and investors reposition their funds.
Stocks fell globally on Tuesday due to concerns about possible US military intervention in Syria’s escalating civil war.