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Parastatals as instruments of government policy: The Food Corporation of India

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  • McCorriston, Steve
  • MacLaren, Donald

Abstract

Reforms of agri-food policies typically occur without taking account of the structure of markets in which the policy reforms occur. It is usually assumed that markets are perfectly competitive, an assumption that is violated in the presence of parastatals. They often play multiple roles in meeting the objectives of government policy through their activities in procurement and distribution of food commodities. After presenting a general framework, we modify it to model the specifics of the Food Corporation of India and the functions that it fulfils in providing price support to farmers and food security to poor households. Keeping the government’s policy objectives unchanged, we then alter the functions that the FCI fulfils to be consistent with recommendations from the High Level Committee that recently investigated the role of the FCI. These recommendations included the substitution of negotiable warehouse receipts for the Minimum Support Price scheme for farmers, and the substitution of cash transfers in place of the Targeted Public Distribution System for poor households. We find that this re-instrumentation of the means of achieving policy objectives, together with a consequent greater role for the private sector, leads to substantial welfare gains as well as to greater food security when measured as food availability.

Suggested Citation

  • McCorriston, Steve & MacLaren, Donald, 2016. "Parastatals as instruments of government policy: The Food Corporation of India," Food Policy, Elsevier, vol. 65(C), pages 53-62.
  • Handle: RePEc:eee:jfpoli:v:65:y:2016:i:c:p:53-62
    DOI: 10.1016/j.foodpol.2016.10.005
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    References listed on IDEAS

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    1. Ganguly, Kavery & Gulati, Ashok, 2013. "The Political Economy of Food Price Policy: the Case Study of India," WIDER Working Paper Series 034, World Institute for Development Economic Research (UNU-WIDER).
    2. Christophe Gouel & Madhur Gautam & Will J. Martin, 2016. "Managing food price volatility in a large open country: the case of wheat in India," Oxford Economic Papers, Oxford University Press, vol. 68(3), pages 811-835.
    3. Carlo Russo & Rachael E. Goodhue & Richard J. Sexton, 2011. "Agricultural Support Policies in Imperfectly Competitive Markets: Why Market Power Matters in Policy Design," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(5), pages 1328-1340.
    4. Rashid, Shahidur & Cummings Jr., Ralph & Gulati, Ashok, 2007. "Grain Marketing Parastatals in Asia: Results from Six Case Studies," World Development, Elsevier, vol. 35(11), pages 1872-1888, November.
    5. Khera, Reetika, 2014. "Cash vs. in-kind transfers: Indian data meets theory," Food Policy, Elsevier, vol. 46(C), pages 116-128.
    6. Richard J. Sexton & Ian Sheldon & Steve McCorriston & Humei Wang, 2007. "Agricultural trade liberalization and economic development: the role of downstream market power," Agricultural Economics, International Association of Agricultural Economists, vol. 36(2), pages 253-270, March.
    7. Steve McCorriston & Donald MacLaren, 2016. "Food security, welfare, and partial de-regulation of parastatals," Oxford Economic Papers, Oxford University Press, vol. 68(3), pages 836-856.
    8. Landes, Maurice R. & Jha, Shikha & Srinivasan, P.V., 2007. "Indian Wheat and Rice Sector Policies and the Implications of Reform," Economic Research Report 6386, United States Department of Agriculture, Economic Research Service.
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