In September, Parliament passed the FSA guaranteeing 75% of the countrys rural population and 50% of its urban population 5 kg of foodgrains per person per month at heavily subsidised prices. The law, projected to cost 3% of the nations GDP in the first year of its implementation, has faced criticism as it expands the Targeted Public Distribution System (TPDS)Indias existing food subsidy programme that is well known for administrative inefficiencies, corruption, and wastage.
An evaluation report commissioned by the government documented that only 42% of the subsidised food grains released for the poor actually reach them due to corruption and errors in their identification (Planning Commission, 2005). Administrative and handling costs are also high: for every rupee of subsidy transferred to the poor, the Indian government spent R3.65, according to the governments own evaluation. The quality of TPDS, however, is not equally bleak across the entire country. R Khera documents that there are seven large states where TPDS has been functioning well, and another five states where it is improving.
The policy question, however, remains: Would Indias expanded subsidy programme, if there were no corruption, improve the nutrition of the poor
The answer, based on empirical evaluations of food subsidy programmes in India and other developing countries, unfortunately, is no. RT Jensen and NH Miller analysed data from a randomised programme of large price subsidies for the poor in two provinces in China and found no evidence that the subsidies improved nutrition. In one of the provinces, they found that the food price subsidy induced people to substitute away from the subsidised staple food towards foods that cost more per calorie. Their research is an improvement over previous studies that have been criticised for investigating variations in food prices that were not exogenous to demand. One criticism of Jensen and Millers study, however, is that the participants in that study were aware that the subsidy would last only six months. The impact of a longer-term food price subsidy programme may differ from that of a short-term experiment where the recipients know that the benefit is temporary.
In Kaushal and Muchomba (2013), we study the effect of an exogenous increase in rice and wheat price subsidies resulting from the introduction in 1997and expansion in 2002of TPDS. When TPDS was introduced, poor households could purchase 10 kg of rice or wheat per household per month at approximately a third of the market price. The monthly allotment was raised to 35 kg in 2002. The government identified households below the federal poverty line and issued them ration cards that could be used to purchase the subsidised grains. We use the probability of having a ration card as an instrumental variable to predict the food price subsidy of households. We focus on rural households with per capita expenditures less than the median (or less than $1.04 per person per day at the exchange rate based on purchasing power parity) in states where TPDS has been functioning well.
Diverse consumption patterns across India allow us to study the effect of the food price subsidy in two types of districts: those where wheat and rice are the staple food; and those where coarse grains are the staple food.
In the former type of districts, the average monthly consumption of rice and wheat per household is 35 kgthe maximum subsidised amountor higher, and, therefore, the food price subsidy is likely to have a purely income effect. For these districts, we estimate the effect on nutrition and consumption patterns of the increase in income from the TPDS subsidy. In the latter group of districts, the average monthly consumption of rice and wheat per household is 16 kg, and the subsidised price is the marginal price for most households after expansion of TPDS. For this group, we estimate the effect of food price subsidy on nutrition and consumption patterns.
In our analysis, we find that TPDS expansion increased the monthly per capita subsidy amount in high wheat- and rice-consuming districts by R15-18 per person. This amount represents 5% of the per capita expenditure on wheat and rice in the pre-TPDS expansion period. In districts where coarse grains are the staple food, TPDS increased the percentage price discount on rice and wheat by 19-21%.
In first graph, we present estimates of the effect of income from the subsidy on calorie intake. The wheat and rice price subsidy amount from the TPDS program had a negative, but negligible and statistically insignificant effect on total calorie intake. However, there were changes to consumption patterns. A 1% increase in subsidy amount increased calorie intake from wheat and rice by 5.5%, and also increased calorie intake from two non-subsidised food groupsedible oils, and sugar and sugar substitutesbut decreased consumption of calories from coarse grains by 42.7%.
Increasing the price discount on wheat and rice also had no effect on total calorie intake in districts where coarse grains are the staple food. We find that the food price subsidy changed consumption patterns toward increased calorie intake from wheat and rice and away from coarse grains (see the second graph).
We also examine the effect of subsidy amount and food price discount on protein and fat intake. There were negligible and statistically insignificant effects on protein and fat intake in both high wheat- and rice-consuming districts, and in those that were high coarse grain consumers.
The subsidy from Indias targeted food subsidy programme had a negligible overall effect on nutrition, but affected food consumption patterns. In particular, it increased consumption of subsidised grains and some more expensive sources of calories, and decreased consumption of coarse grainscheaper but, taste-wise inferior foods. Changes in consumption patterns are the unintended, and perhaps undesirable, consequences of the policy that may affect agriculture markets without impacting nutrition.
Neeraj Kaushal & Felix Muchomba
Kaushal is associate professor of Social Work and Muchomba is a doctoral student, School of Social Work, Columbia University