Delivering Food Subsidy - The Oxford Topic of Food, Politics, and Society - page 305

sorghum and millet). These are hardy low-productivity crops typically grown in
semi-arid regions with no irrigation. They have suffered from policy neglect because of
the focus on rice and wheat.
The exigencies of procurement have also cast a shadow on policies elsewhere in the
agricultural economy. In the early 2000s, the government (at the federal and state level)
undertook several reforms to transform agricultural marketing—a sector that serves
both producers and consumers poorly.2 The goal was to lighten the regulation that
deterred private-sector entry and investment in areas of marketing such as processing,
transport, and storage.3 Yet these reforms have not been irreversible. The contingent
nature of these policy changes was illustrated in the commodity boom of 2006 to 2008.
The run-up in world commodity prices till the first quarter of 2008 led the government
to impose bans (official and unannounced) of various kinds—on procurement of grain
by private players, on exports of rice and wheat, and on futures contracts in many agri-
cultural commodities. The ban on private players and on grain exports bought the gov-
ernment some stability and enabled it to procure grain cheaper than what would have
been possible otherwise.4
Thus, reforms in agricultural marketing do not sit well with the necessities of pro-
curement. In flush periods with low prices and abundant supplies, the competition with
private trade is not an issue. But when supplies are tight, procurement operations will
not allow free activity by private trade. Such backtracking by the government is not
without cost. Clearly, private players will be wary of investing in the marketing chain
when their activities can be curtailed at will. For this reason, progress toward transform-
ing the marketing sector will remain slow.
Outcomes: The Delivery of
Food Subsidy
In one of the first studies of its kind, Parikh (1994) showed that in 1986-87 the poor
received negligible subsidies in all but two states of India. Despite this, however, the pro-
gram itself was costly. A transfer of one rupee to the bottom 20% cost the government at
least five times as much.
It turned out that most of the poor did not use the PDS. Even when they did,
their PDS purchases were a small fraction of their total grain consumption. The
early studies showed (1) that the PDS was not targeted toward the poor; in fact
the nonpoor received a significant fraction of the income transfer; (2) the subsidy
amounts itself were very small because of low subsidy rates as well as limited enti-
tlements; and (3) there was considerable fraud in terms of illegal diversion of sub-
sidized foodgrains to the open market (Ahluwalia 1993; Dev and Suryanarayana
1991; Dutta and Ramaswami 2001; Howes and Jha 1992; Radhakrishna et al. 1997;
World Bank 2001).