India unveils huge food program, critics see overspending

A market in Mumbai.
Indranil Mukherjee | AFP | Getty Images
A market in Mumbai.

With its currency in meltdown and growth at the lowest in the past decade, India's government on Monday passed a landmark food subsidy bill that will cost the country an estimated $19.8 billion each year.

The program will vastly expand the world's biggest food program and is a key part of the ruling Congress party's strategy to win re-election in May 2014.

The legislation has been criticized by analysts who question spending more money at a time when growth is slowing and when India has both budget and current account deficits.

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The government's fiscal deficit in 2012-2013 was 4.9 percent of GDP. India plans to borrow roughly $100 billion this year (not including the new program) to plug that gap, and the country is having to pay a hefty 8.3 percent on its 10-year debt.

The legislation was passed late Monday amid high drama with the Congress party's president, Sonia Gandhi, taking ill and being admitted to a hospital.

"There are people who ask whether we have the means to implement the scheme" Gandhi was quoted as saying by the Hindustan Times earlier in the day in parliament. "I would like to say that we have to figure out the means. The question is not whether we can do it or not. We have to do it."

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The food bill is seen as a popular measure in a country where roughly a third of the population suffers from malnutrition. It hopes to reach around 800 million of India's 1.2 billion people.

But India's subsidy programs are known to be leaky, with much of the money being lost to corruption and waste.

The Congress party, which has now been in power for a decade, has been blamed for exacerbating the current crisis by failing to encourage investment and restore investor confidence.

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On Monday, Pranab Mukherjee, India's president and former finance minister, said the long-term prospects of the country were bright. Mukherjee was quoted by the PTI news agency as saying he wasn't "disappointed" by the current economic situation.

—By CNBC's Deepanshu Bagchee.