New Delhi, July 6: It is a delicious paradox: the burden of expenditure on the proposed National Food Security Act could actually bring down the government’s subsidy bill.

The act — the details of which the food ministry still has to work out — seeks to give 25 kg of wheat or rice every month at Rs 3 a kg to below poverty line (BPL) families.

The budget hasn’t yet factored in the spending under the Food Security Act.

There are a total 6.5 crore BPL families, of whom 2.5 crore are defined as the poorest of the poor and are already getting 35 kg of wheat/rice at Rs 2 to 3 a kg every month under the Antyodaya Anna Yojana (AAY).

The remaining 4 crore get 35 kg wheat/rice at Rs 4.15/5.65 a kg every month through the public distribution system (PDS). Back of the envelope calculations show that the subsidy burden on this is Rs 29,284 crore.

If the proposed act extends the AAY to the entire BPL population, then the subsidy bill could go down to Rs 22,834 crore – a saving of Rs 5684 crore. That’s because it will reduce the quantity of foodgrain for all sections by a good 10 kg a month (as well as the price for non-AAY families by Rs 1.15 a kg for wheat and Rs 2.65 for rice), even as it makes the AAY families pay Re 1 a kg more for wheat.

Politically, this may not be acceptable at all.

The alternative could be limiting the legislation to non-AAY families, reducing both the quantity and price for them. But even then, the subsidy on this section is likely to fall from Rs 16,464 crore to Rs 14,058 crore.

Overall, though, the subsidy bill, which eats up a substantial chunk of government revenues, appears to be the only glimmer of hope in the otherwise gloomy public finance front.

Spending on subsidies reduced – from Rs 1,29,243 crore in 2008-09 to Rs 1,11,276 crore in 2009-10. More importantly, its share in revenues receipts has fallen from 22.9 per cent last year to 18 per cent. “This shows a determination to reduce the subsidy burden, which needs to be pruned,” commends D.K. Srivastava, director of the Madras School of Economics.

This has come largely due to a huge reduction in the fertiliser subsidy – from 75849 crore in 2008-09 to Rs 49980 crore in 2009-10. This subsidy had shot up last year due to the spiralling international prices of petroleum products and this year’s reduction is also a reflection of lower prices.

There was also a restructuring of fertiliser pricing to make the industry more investment-friendly. The other two major subsidy heads — food and petroleum — however, will increase. The food subsidy bill is up by Rs 8863 crore, while the petroleum subsidy is up by Rs 232 crore. The food subsidy bill has risen mainly because of higher procurement prices for wheat and rice.