Working Paper: 332

Fiscal Sustainability of National Food Security Act,
2013 in India

Krishanu Pradhan

 

Abstract

Forward looking approach to fiscal sustainability generally seeks to assess the fiscal implication of expected program specific expenditure in future. In this regard, the paper attempts to assess the future fiscal implication of National Food Security Act (NFSA), 2013 in India. The results, under baseline scenario based on projected debt/GDP ratio shows modest increase in it till 2021-22, and then declines towards the current level of 70% in 2012-13 and hence signify fiscal sustainability. The dynamics of projected baseline debt/GDP ratio is largely shaped by the provisions in the Act and underlying demographic factors to be experienced by India during the projection horizon. The sensitivity analysis under different assumptions about productivity growth, interest rate on government borrowing and primary deficits/GDP ratio show mixed results and hence provide necessary policy implication to restore fiscal sustainability under the Act. Keeping the primary deficits/GDP ratio below 1.5% by way of periodic upward revision of issue price of food grains, as envisaged in the Act, coupled with higher productivity growth and lower interest on government debt would ensure long-term fiscal sustainability of the Act.

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