India says can afford food-for-poor scheme as markets tank

India's finance minister insisted 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 record low.

The Indian currency, which has been under sustained pressure, fell 2.73 percent to 66.07 against the dollar and stock markets closed down 3.18 percent after the lower house of parliament passed the Food Security Bill.

India still struggles to feed its population adequately with more than 40 percent of children under five malnourished, which Prime Minister Manmohan Singh describes as a "national shame".

But 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 and inefficient distribution system.

"After providing for the food security bill, we will remain within the limit I have set for myself in the budget," Finance Minister P. Chidambaram told reporters at a press conference in the capital New Delhi.

The legislation, a flagship programme of the ruling Congress party with a budgeted annual cost of about $19 billion, is intended to "wipe out" endemic malnutrition by offering subsidised grains to 800 million people.

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), according to a government statement.

Chidambaram, who has been seeking to reassure investors about India's finances, reiterated that a public deficit of 4.8 percent of gross domestic product remained a "red line" that would not be crossed this year.

He also attributed the rupee weakness to global trends which have seen emerging market currencies and stock markets under pressure as the US economy picks up and investors reposition their funds.

But India's central Reserve Bank of India has previously warned that increased public spending stemming from the food bill could deepen the government's deficit and stoke already elevated inflation.

"The broad sentiment for the rupee is still weak. The food bill will be a strain on the government finances," said Siddhartha Sanyal, chief India economist with Barclays Capital.

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.

India's economic growth has slumped to 5.0 percent on an annual basis, its slowest rate in a decade, and investors are wary of new subsidies for a scheme seen by some as a vote-winning ploy ahead of elections next year.

Opposition leader Arun Shourie, a former disinvestment minister, called recently for the Food Security Bill to be scrapped to help restore confidence in India's fiscal discipline.

"The Food Security Bill must be stopped forthwith if you want investors to believe you are serious on this count," he told The Indian Express last Friday.

Opponents also argue that the extra resources required by the programme -- another five million tonnes of food grains a year -- will be funnelled into the notoriously corrupt Public Distribution System.

Kris Gopalakrishnan, president of the Confederation of Indian Industry, said that the public spending burden was worrying but "the larger concern is regarding the effective implementation of such a high profile and critical social agenda".

About 240 million families already have ration cards entitling them to 35 kilos of subsidised grains a month -- rice, wheat and maize -- which they buy at low prices at 500,000 government-run Fair Price Shops across the country.

Nationwide 75 percent of rural citizens and 50 percent of urban dwellers will be covered by the Food Security Bill, with state governments required to identify those eligible.

The bill also includes provisions for extra food for pregnant women, children and lactating mothers, who are entitled to a maternity benefit of at least 6,000 rupees.

Stocks fell globally on Tuesday due to concerns about possible US military intervention in Syria's escalating civil war.