Foodgrain Subsidies in India: Are they Reaching the Poor?

Concerns about the slow down in agricultural growth and the macroeconomic impact of rising fiscal deficits have refocused attention to public expenditures in the agricultural sector. Rising levels of agricultural subsidies have been blamed for crowding out much needed productivity-enhancing investments. This study examines the potential welfare impacts of subsidy reform by tracing the beneficiaries of the farmer and consumer foodgrain price subsidies, and by assessing the distribution and level of these subsidies across households at the state level. Using benefit incidence analysis, we find that producer price subsidies benefited only a few states, and larger farmers within these states. The shift to the targeted public distribution system contributed to an increase in allocation and offtake in states with higher rates of poverty. Household participation rates at the national level on average improved, from 22.6 percent to 31.6 percent between 1993/94 and 1999/00, but delivery problems still leave the major share of the poor out of the system.