The bill will be sent to parliament next week, a senior minister who asked not to be named told Reuters.

"The food security bill is cleared," the minister said.

The government's Congress party-led coalition has a majority and the multi-billion dollar project has a good chance of being passed into law ahead of elections in the poor, politically important state of Uttar Pradesh early next year.

The new scheme aims to tackle rates of child malnutrition that are worse than in sub-Saharan Africa, but critics say slowing growth and a widening fiscal deficit in Asia's third largest economy mean the timing of the bill is irresponsible.

"The economy may be in a bad shape but the fact is elections are coming," D.H. Pai Panandikar, head of private economic think tank RPG Foundation, said, before the cabinet cleared the bill.

"Any policy they approve now will be aimed at extracting some political mileage. When you think what this means for public finances, you know the government is living for the day."

Growth in the second quarter of the 2012 fiscal year has slowed to its lowest rate for more than two years. The rupee is the worst performing currency in Asia so far this year, the country's current account deficit has grown and the stock market has lost some 22 percent since January.

Earlier in the month, opposition from coalition allies forced Prime Minister Manmohan Singh to backtrack from a policy allowing foreign supermarkets access to India's retail sector. In contrast, the subsidy plan is likely to find broad support.

Voter anger at high food prices has damaged the popularity of Singh's centre-left government in a country where 40 percent of its population live below the U.N. poverty line.

Existing food subsidy programs are plagued by corruption, with only a small proportion of the grain reaching the intended beneficiaries.

BACKED BY GANDHIS

Rural welfare schemes helped the ruling Congress party and allies return to power three years ago. The new bill will provide subsidized grain to 75 percent of people in the countryside and half the urban population deemed too poor to eat properly. A total of 810 million people could benefit.

The food security bill and other welfare orientated laws are backed by Congress party leader Sonia Gandhi and her son Rahul Gandhi, who heads the party's campaign in Uttar Pradesh. The Gandhis are seen as being politically to the left of Singh.

The planned subsidies double the cost of an existing program that sells cheap grains and pulses to nearly 180 million poor families, the agriculture ministry says.

Last year, the government spent $12 billion, or 1 percent of GDP, on that program.

India aims to cut the fiscal deficit to a targeted 4.6 percent in 2011/12, but policymakers say it will be difficult to meet that target.

The food ministry is assuming grain purchases at around 30 percent of output for the new food bill, relying on increased yields and lower wastage to cover extra requirements and keeping exports on the agenda.

But it is still not clear how 30 percent of all grain output could cover 810 million beneficiaries.

India, the world's second-biggest rice and wheat producer, aims to grow 186 million tons of these grains in the crop year that began in June 2011. In 2010/11, output was at 181.25 million tons.

The extra annual requirement for rice and wheat under the draft law will be at least 45.6 million tons, calculated on a monthly outlay of about four million tons.

(Reporting by Nigam Prusty; Writing by Frank Jack Daniel)

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