Food subsidies for the poor in India: are they working?

Abstract

This study examines food subsidy in India and assesses it critically against the objectives leading to its initiation. Using 61st round of National Sample Survey data on the monthly consumption of households for the year 2004–05, our study locates the outreach of Public Distribution System (PDS) in rural and urban areas in India and also examines its role in maintaining price stability. The findings of the study show that the outreach of PDS in the country is highly inadequate and concentrated more in the relatively developed and less poverty states than vice versa.

Keywords:

• food subsidy
• public distribution system
• India

Acknowledgements

This paper was presented at the New Zealand Asian Studies Society’s 18th Biennial Conference, Victoria University of Wellington, Wellington, New Zealand. Another version of this paper was presented in the Indian Economy and Business Conference organized by Australia South Asia Research Centre, Research School of Asia and Pacific, Australian National University, Canberra, Australia. The comments of the conference participants are gratefully acknowledged. I also thank Colin Mackerras, Arthur Shacklock, Robyn Cameron, and Teresa Marchant for their useful comments on the paper.

Notes

^1. In WTO terminology, subsidies are identified by ‘boxes’ which are given by the colours of traffic lights: green (permitted), amber (slow down, i.e., be reduced), and red (forbidden).

^2. The Doha development round ended in a deadlock in July 2008 mainly due to the disagreement between India, China, and United States on agricultural subsidies. Recently, India has been working closely with G20 and G33 (groups include developing countries) to achieve an acceptable outcome in the Round which benefits other developing countries.

^3. The basis of poverty estimation used in the official statistics in India is the fixed consumption basket set in 1973–74, which provides minimum calorie requirement of 2400 calories in the rural areas, and 2100 calories in the urban areas (Dev 2005). The Planning Commission estimates state-level poverty by using state-specific poverty lines identified by the Expert Group on Estimation of Proportion and Number of Poor (also called Expert Group Method) to estimate poverty. Recently, based on the Tendulkar Committee Report, the national poverty line for 2011–2012 is estimated at Rs 816 per capita per month in rural areas and Rs 1000 per capita per month in urban areas. Accordingly, the percentage of people below poverty line in 2011–2012 is estimated at 25.7% in rural areas, 13.7% in urban areas and 21.9% at the overall national level. As the Tendulkar methodology has faced criticism for being too low, the Rangarajan Committee has been appointed by the Planning Commission to review once again the methodology for the measurement of poverty (Planning Commission 2013).

^4. This refers to a minimum stock of food grains maintained in the central pool with the objectives of running PDS and other welfare schemes, ensure food security especially during the period when food grains production falls short of demand, and stabilization of prices. As in January 2010, the minimum buffer stock required was 8.2 million tonnes for wheat and 11.8 million tonnes for rice. The actual stock of wheat as in January 2010 was 23.1 million tonnes of wheat and rice 24.3 million tonnes.

^5. The Antodaya scheme was launched on 25 December 2001. Under the scheme, the poorest families among the BPL families covered under the Targeted PDS are identified and 25 kg of food grains are made available to each eligible family at a highly subsidized rate of Rs. 2 per kg for wheat and Rs. 3 per kg for rice.

^6. This national level consumer expenditure seventh quinquennial survey (61st round of NSS) was carried out countrywide on a sample of 79,298 rural households, and 45,346 urban households in 2004–05.

^7. Wheat and rice are issued to the State Governments/UT Administration from the central pool at the uniform central issue prices (CIPs) for distribution under TPDS. Under the TPDS introduced with effective from 1 June 1997, the CIPs of wheat and rice are fixed for BPL and APL families separately. The CIPs of wheat and rice are subsidized and have remained unchanged for BPL families since July 2000.