Food Subsidy, Income Transfer and the Poor: A Comparative Analysis of the Public Distribution System in India’s States
ASARC Working Paper No. 2011/16
37 Pages Posted: 12 Jun 2012
Date Written: October 12, 2011
The Targeted Public Distribution System (TPDS) — the largest food subsidy programme in India — has been a dismal failure in targeting the poor. The present paper examines its performance in three Indian states — Andhra Pradesh, Maharashtra and Rajasthan, based on primary data collected for this study. As real income transfers through food price subsidies are a tiny fraction of expenditure per person under this scheme, a contribution of the present study is to model determinants of real income transfers through subsidised wheat, rice and sugar. The analysis throws new light on how income transfers vary with economic status of a household, inequality in the distribution of land in a village, amount of food price subsidy, transaction costs of buying from ‘fair price shops’ (FPS), and supply shortages. The policy implications of these results are profound. Desperate measures such as a universal food subsidy enshrined in a proposed National Food Security Act are rejected on the grounds that the enormous leakages and wastage under the present TPDS would only get worse. Assertions that a universal food subsidy is the only option consistent with the right to food are rejected as mistaken, as the latter could be interpreted as a right to a right, or, more specifically, as a right to sensible livelihood expansion and price stabilisation policies.
Keywords: Targeted Public Distribution System, Food subsidy, Targeting Errors
JEL Classification: D12, D63, H24, H42
Suggested Citation: Suggested Citation