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SPANDAN Working Paper

Do Publicly Provided Subsidized Foodgrains “Crowd-out” the Open Market Demand?

Publisher: SPANDAN

There is a dual market for food grains in India. The government-run Public Distribution System (PDS) which provides subsidized rice and wheat to the consumers co-exists alongside the private market. The ambit of PDS is further expected to expand with the National Food Security Act (NFSA), 2013 in place now. This has led to concerns about the possible distortionary effect of greater consumption of the subsidized grains on the open market demand. Using data from consumption expenditure survey 2011-12 for the state of Tamil Nadu in India with universal PDS, this article estimates the magnitude of open market demand of grains being “crowded-out” by consumption from PDS. We do not find any one-to-one or complete crowding out of the open market demand for grains due to PDS. Consumption of one kg of rice from the PDS leads to a decline in the open market demand of rice by almost 500 grams. These crowding-out estimates are found to vary across the expenditure quartiles. It is highest for those in the bottom expenditure quartile.

Author(s): Andaleeb Rahman | Views(566) | Download (141)

  
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