The recent Food Security Act (FSA) passed by the Indian government has raised criticism due to its high cost but questionable effect on nutrition. This column presents a recent study that finds the food subsidies did not improve nutrition, but affected food consumption patterns. In particular, consumption of subsidised grains increased, and consumption of some cheaper and inferior substitutes decreased
In September, Parliament passed the FSA guaranteeing 75% of the country’s 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 nation’s GDP in the first year of its implementation, has faced criticism as it expands the Targeted Public Distribution System (TPDS)—India’s 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 government’s 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 India’s 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 Miller’s 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