India to extend free food grains programme by five years, says Modi

MUMBAI, Nov 4 (Reuters) - India is planning to extend its free food grains programme by five years, Prime Minister Narendra Modi said on Saturday, as the government tries to shield consumers from rising prices of cereals ahead of a general election early next year.

The extension will offer relief to consumers, but it will also lead to higher government spending and require New Delhi to procure more wheat and rice from farmers to sustain the welfare programme, which provides free grains to more than 800 million people.

Modi confirmed the move at an election rally in Durg, a city in the central state of Chhattisgarh, where state elections are due this month.

The grains programme, estimated to cost the government around 2 trillion rupees ($24.06 billion) this year, was due to expire at the end of the year.

India, the worlds second-largest producer of wheat and rice, has restricted exports of both cereals to curb rising prices at home.

A Mumbai-based dealer with a global trade house said the government would be forced to keep export restrictions in place for a longer period because it needs to purchase from farmers to run the programme.

\“Without export restrictions, local prices would rise above the government set floor prices, and they would fail to procure enough,\” he added.

For the first time in eight years, Indias rice output is expected to drop this year, raising the prospect that New Delhi will extend curbs on exports of the grain to keep a lid on food prices ahead of elections.

Global rice prices jumped to a 15-year high after India, the worlds biggest rice exporter that accounts for more than 40% of global rice exports, curbed exports of non-basmati rice varieties in July.

India last year banned wheat exports in a surprise move after a heat wave curtailed output.

($1 = 83.1400 Indian rupees)