Understanding the Rising Food Subsidy: A Component- wise Analysis of Economic Costs in India

Abstract

Food subsidy has been a foundation of India’s social welfare and food security strategy for decades. It bridges the gap between the economic cost of foodgrains and the highly subsidized issue price under the Public Distribution System (PDS), thus enabling the poor and vulnerable sections of society to access food at affordable rates. In the context of India’s large population and persistent rural poverty, food subsidy plays a dual role- supporting farmers’ incomes through assured procurement at the Minimum Support Price (MSP) and providing purchasing power to the poor through subsidized foodgrains distribution. This paper examines the long-term trends in food subsidy in India, with special focus on its annual growth rate and share as a percentage of GDP, to understand its fiscal significance. The study further explores the determinants of the economic cost of foodgrains, which directly influences the subsidy burden. Key components such as MSP/procurement price, procurement incidentals, and distribution costs for wheat and rice are analyzed in terms of their annual growth rates and their impact on the overall economic cost, using regression analysis. The findings aim to provide insights into which cost components contribute the most to the rise in food subsidy. The study relies on secondary data compiled from various government sources to highlight the changing dynamics of food subsidy in India.