Policies for food security in India

Abstract

Ever since India’s independence large-scale government interventions have been drastically shaping the landscape of the food grain sector. From a famine-prone country, India has become a large exporter and stockholder, with stable domestic prices and several nutrition programs. At the same time, 15 per cent of Indian population is still undernourished. The Indian government is currently implementing one of the world largest food aid programs - the National Food Security Act (NFSA) – in the course of which it experiences many challenges and needs rigorous analysis of the measures and tools of managing the system. Additionally, there is a strong international pressure on India to liberalize its policies in the food grain sector. The present dissertation studies various aspects of the food grain policies in India aiming to provide their comprehensive analysis. <br /> We use econometric time-series techniques to ex-post evaluate the impacts of the policy measures on the market outcomes. Among other conclusions, we find a strong response of the wheat and rice production to the support prices whereas the rice consumption is mostly driven by the distribution of the subsidized grains. Due to protectionist trade policies, the grain export is so distorted that its volumes hardly correlate with the prices. We detect a clear upward trend in inflation adjusted fiscal costs, started in 2006-07, as a consequence of growing procurement, storage and distribution of wheat and rice. <br /> We develop a dynamic partial equilibrium model with stochastic production shocks, based on the econometric results mentioned above. We produce mid-term simulations of different scenarios with possible policy measures to comply with the NFSA obligations based on the current, in-kind, system. We find that the high pressure on fiscal costs and public stocks, put by the NFSA, can be mitigated at the cost of higher and more volatile market prices. Our simulations indicate that a cash-based regime, alternative to the in-kind distribution, generates lower fiscal costs while the total stocks remain sufficient due to the increase of the private stocks. However, the higher market prices and volatility characterizing this scenario may negatively affect the producers, consumers, and the political stability.<br /> Basing on household consumption data, by means of cross-sectional econometric techniques we analyze the consumption patterns of wheat and rice delivered through the Public Distribution System (PDS), targeting errors and reasons for leakage, self-selection and under-supply of staples. We find some serious targeting errors of the PDS: many poor households are not included in the system and migrant workers and female-led households are often not well covered. There is a negative self-selection of the richer households that results in cost savings, which would be lost under a cash-transfer scheme. We find that the leakage rates are in general very low for poor households and regions. Furthermore, we find that subsidizing increases the total consumption of wheat and rice. This increase, however, produces additional pressure on the prices that can have negative consequences for the poor excluded from the system because of the high targeting errors.