Weak monsoon raises fiscal woes, hits shares

NEW DELHI (Reuters) - India's failing monsoon is beginning to exact a toll on stretched government finances, with the food subsidy bill for Asia's third largest economy set to rise by $1.5 billion or more from what was estimated in July.

Farm Minister Sharad Pawar urged official agencies on Wednesday to step up efforts to buy rice from farmers and urged state governments to reduce taxes on such purchases.

"Food subsidy has grown manifold in the last few years, and in 2009/10 it is estimated that it will cross 600 billion rupees ($12.3 billion)," he told a conference of state food ministers.

In last month's budget, food subsidy costs were estimated at 525 billion rupees for the fiscal year that began in April.

Pawar said output of sugarcane, oilseeds and lentils was expected to drop as June-September monsoon rains have been 29 percent below average up to Aug 12.

Worries the poor rainfall will hurt economic growth contributed to the share market's 1.5 percent fall on Wednesday, and have been a factor in its losses of 5.5 percent fall so far this month.

An agricultural think tank said on Wednesday that the failure of the monsoon added to global uncertainty about food and grain stocks.

And lower farming activity could reduce India's fertiliser demand by six to seven percent, the head of a fertiliser firm said.

SUGAR AND SOYBEAN

Pawar said the outlook for India's sugar output for the crop year starting in October was not bright, and the government might ask mills to increase supply of low-priced sugar for public distribution.

Currently, mills are forced to sell 10 percent of their output at low state-set prices, and media reports say this may be raised to 20 percent.

"The government is also considering increasing the percentage of levy sugar to make more sugar available through the public distribution system," Pawar said.

Prospects of large imports by India, the world's largest consumer of the sweetener, has helped raise international sugar future prices to their highest in nearly three decades.

Traders said India's soybean crop had managed to survive the dry weather so far, but it needed rainfall in the next seven to 10 days to ensure a good harvest.