Food subsidies, social safety programme: fiscal deficit likely to worsen in South Asia: ADB

The implementation of food subsidies and the social safety net programme are likely to increase current expenditure and worsen the fiscal deficit in Pakistan, Sri Lanka, India, and Maldives - countries that already have relatively high fiscal deficits.
A report of Asian Development Bank (ADB) titled 'Food Price Escalation in South Asia-A Serious and Growing Concern' says that the food supply in South Asia is limited by low agricultural productivity, in particular with regard to yield.
The share of South Asia's arable land as percentage of total land area is on a slowly decreasing trend. Given the limited arable land and a certain amount of persistence in crop switching, competing use of food grains (in particular to produce bio-fuel), urbanisation and diversion of agricultural land for commercial purposes places limits on the scope for increasing supply of food grains and other commodities.
Policy responses in South Asia have been immediate and mainly focused on (short term) reduction of food prices to consumers. A wide range of policy instruments were used to ease the impact of the renewed food crisis including food price reduction, safety net programmes and stimulation of production. In Pakistan, the policy responses taken by the government in order to reduce the food prices include reduction in food taxes, increase in grains' supply (grain stock), export restriction, price controls with consumer subsidies, and food aid.
The report reveals that South Asia has moved along similar lines as ASEAN+3 by establishing the SAARC Food Bank (SFB) on 3 April 2007 in New Delhi. The agreement, which superseded the "Agreement on Establishing the SAARC Food Security Reserve," has two objectives; (a) to act as a regional food security reserve for the SAARC member countries during normal times, food shortages and emergencies; and (b) to provide regional support to national food security efforts, foster inter-country partnerships and regional integration, and tackle regional food shortages through collective action.
Under the agreement, the food bank has been authorised to start functioning with a total reserve of 241,580 tons of food grains, of which India, Pakistan, Bangladesh, Nepal, Sri Lanka, Afghanistan, Bhutan and Maldives are to contribute 153,000 tons, 40,000 tons, 40,000 tons, 4,000 tons, 4,000 tons, 1,420 tons, 200 tons and 180 tons respectively.
However, SFB is not yet able to reserve adequate food grains to ensure regional food security. At present, around 243,000 tons of food grains including 153,000 tons in India, 40,000 tons each in Bangladesh and Pakistan, 4,000 tons each in Nepal and Sri Lanka, 1,200 tons in Afghanistan, 200 tons in Bhutan and 180 tons in Maldives are available with the SFB.
During the fourth meeting of the SFB in Dhaka in 2010 it was proposed to increase the strategic reserve at the SFB to 400,000 tons from the present 243,000 tons, which may later be increased to one million tons. The factors that reportedly influenced the meeting in arriving at the decision of increasing the strategic reserve to 400,000 tons are: (i) rapid growth of population outpacing declining agricultural land in the South Asian region; (ii) increasing number of hungry people putting the future of food security at risk in the South Asian region; and (iii) inadequacy of SFB to address food crisis during any emergency, as well as food security in the South Asian region.
The report says that in South Asia, if India (2nd largest global rice producer) and Pakistan (7th largest global wheat producer), could reach world yield averages in rice and wheat, respectively, this would represent an important contribution to increasing global and regional supplies.