Food Subsidies in India: Revisiting the Estimates

There is a view that the fiscal burden of food subsidies in India is unsustainable. Yet popular debate and discussion around the costs of these food subsidies, relative to their benefits, are misleading for two reasons. First, they typically treat reported budgetary subsidy estimates—i.e. the fiscal cost to the government of the distribution of food via ration shops—as equivalent to “transfers” to beneficiaries. Secondly, they tend to focus exclusively on consumers. In doing so, they neglect the two-part nature of the food distribution system, which includes payments to farmers at the time of procurement. This paper examines ways of measuring the costs and value of the food subsidy. We present estimates that combine the implicit value of benefits to consumers arising from the reduced price of grain sold to consumers via ration shops, with implicit benefits to farmers, in terms of the price difference between what farmers are paid by the government and what they would have obtained in the open market. This approach shows that each rupee of the “food subsidy” reported in government accounts represents a transfer worth Rs 1.29 to consumers and farmers, on average, over the period 2001–02 to 2022–23. That is, each rupee transferred to these groups is associated with a cost of Rs 0.79 to the government.