A new study by Indian Institute Of Management, Ahmedabad (IIM-A) has shown the rise of food subsidies in India over a period of six years. The reports are shocking. During the time span between 2006-07 and 2011-12, food subsidies in India have grown over 300 percent.
Studies show that the food subsidies have increased over 25 times in the past 21 years from Rs 2,850 crore in 1991-92 to Rs 72,823 crore in 2011-12. And the share of food subsidies in the total central government subsidies under non-planed expenditure has increased from 23.3 percent to 33.7 percent.
The paper, Food Subsidy in India: Trends, Causes and Policy Reform Options written by Vijay Paul Sharma, an IIM-A faculty member says, “India has one of the largest food subsidy programmes in the world that has created a relatively effective social safety net but is also being increasingly criticized because of its large contribution to government budget deficits, economic inefficiency and poor targeting”.
The main culprit behind this is the rise in procurement prices. This increased the economic cost of food grains that resulted in rise in food subsidies. There has been a rise in the economic cost of rice from Rs 1,391 per 100 Kg in 2006-07 to Rs 2,184 in 2011-12. Thus a total increase of about 57 per cent. Same is the case of wheat. It has increased from Rs 1,178 to Rs 1,652 (40.3% increase). Increase in procurement price (74.2% in rice and 67.1% in wheat) was the main reason for the increase in economic cost of food grains.
The paper says, “The proportion of expenditure on food items has declined by about 10 per cent in the rural areas and by about 16 per cent in the urban areas between 1987-88 and 2009-10 but low income class of consumers spend about 65 per cent of their total expenditure on food items in rural areas and about 62 per cent in urban areas”.
The importance of the prices of different food items varies among different sections of the society. For the poor people, cereals account for over 30 percent of their food expenditure while for rich people it is less than 20 percent. While in rural areas the share of high value food items (46.6 percent) like livestock and fruits and vegetables is higher as compared to urban areas (44.6 percent). Therefore, the level of food prices is an important determinant of the purchasing power of people.
Source: The Times Of India