Food subsidy in India: its components, trends, causes and reforms for public policy

Abstract

Food prices play an important role in the well-being of the poor and poverty reduction in developing countries. Therefore, there are government interventions in foodgrains markets in one form or another for several decades, starting during the Second World War. Government interventions can be either through direct participation as a provider or as a buyer (procurer) of foodgrains, or indirect participation in markets through taxes, subsidies, regulations, etc. The main objectives of these interventions are to ensure remunerative prices to the farmers in order to increase foodgrains production, improve access to food for economically vulnerable people, and stabilise foodgrains prices and availability in the country. This paper is an attempt to address some of the issues related to food subsidy in India. It deals with the components, magnitude and trends in food subsidy. It examines the main sources of food subsidy and factors affecting subsidy and discusses the policy options for containing food subsidy and draws out emerging issues for policy reforms.