A Fat Subsidy and its Impact on Edible Oil Consumption: Evidence from India

Nearly one-fifth of adult Indians are overweight or obese. Among potential interventions to address the public health problem this poses, are the so-called fat taxes. While these are yet to be implemented in India at scale, this paper looks at the impact of a negative tax (subsidy) on palm oil that has been implemented in three states—Tamil Nadu, Maharashtra and Andhra Pradesh— to examine the extent to which this policy has had an impact on edible oil consumption. Using consumer expenditure survey data, and a matched differences-in-differences approach, the paper finds that the subsidy on palm oil led to an increase in its consumption, both in rural and urban areas, with effects being more pronounced in rural areas. The increases are also the largest in Tamil Nadu, relative to other states. There was modest impact on overall consumption of edible oils in rural areas of two states; and there is consistent evidence that consumers displaced market-sourced groundnut and coconut oils for palm oil. The paper draws some nutritional implications of this switch.