• India’s food subsidy grew by 300%, says IIM-A study
     August 18th, 2012     Kunal     Posted in Education In Gujarat, Gujarat in News

    Food subsidies have grown by more than 300 per cent in a period of six years between 2006-07 and 2011-12, says a study by the Indian Institute of Management, Ahmedabad (IIM-A).

    According to the study, food subsidies increased from Rs 2,850 crore in 1991-92 to about Rs 72,823 crore in 2011-12, an increase of over 25 times in 21 years. As a result, its share in total central government subsidies under non-planed expenditure increased from 23.3 per cent to 33.7 per cent.

    “India has one of the largest food subsidy programmes in the world that has created a relatively effective social safety net but is also being increasingly criticized because of its large contribution to government budget deficits, economic inefficiency and poor targeting,” says the working paper Food Subsidy in India: Trends, Causes and Policy Reform Options by IIM-A faculty member-Vijay Paul Sharma.

    According to the study, increase in procurement prices was the main contributor that increased economic cost of foodgrains, which is responsible for rising food subsidy. “The proportion of expenditure on food items has declined by about 10 per cent in the rural areas and by about 16 per cent in the urban areas between 1987-88 and 2009-10 but low income class of consumers spend about 65 per cent of their total expenditure on food items in rural areas and about 62 per cent in urban areas,” it says. The economic cost of rice has increased from Rs 1,391 per quintal in 2006-07 to Rs 2,184 in 2011-12, an increase of about 57 per cent. In case of wheat it has increased from Rs 1,178 to Rs 1,652 (40.3% increase). Increase in procurement price (74.2% in rice and 67.1% in wheat) was the main reason for the increase in economic cost of foodgrains.

    The relative importance of individual food commodities in the food budgets also varies among consumers. In case of the poor, cereals account to more than 30 per cent of the expenditure incurred on food, while in case of the rich, it accounts for less than 20 per cent. The share of high value products, namely, livestock and fruits and vegetables is high in rural areas (46.6%) than in urban areas (44.6%). Therefore, the level of food prices is an important determinant of the purchasing power of people.

    Excessive food grain stocks have also contributed to high food subsidy as there is very high positive association between food stocks and carrying costs of stocks, the study concludes.