The economics of foodgrain management in India

This paper by Kaushik Basu, Chief Economic Adviser in the Ministry of Finance presents fundamentals of our foodgrain market and policy that leads to this situation and also suggests policies for rectifying this. Analyses some broad principles of economics that have been violated in the existing strategy and explains why we have not had adequate success in enriching farmers and protecting consumers.




The simultaneous occurrence of high food inflation and large foodgrain stocks in our granaries has been a matter of widespread concern in India. The aim of this paper is to understand the fundamentals of our foodgrain market and policy that leads to this situation and to suggest policies for rectifying this. The central argument of the paper is that, in creating a better foodgrains policy, it is imperative that we look at the entire system of food production, food procurement and the release and distribution of food. Trying to correct one segment of this complicated system is likely to end up in failure or, at best, have limited success. The paper argues that there are two different motives for foodgrain procurement by the state—to provide food security to the vulnerable population and to even out foodgrain price fluctuation from one year to another. Further, how we procure the food has an impact on how we release the food, and vice versa. Inspired by the sight of foodgrain going waste, it is often made out to be that our central problem is that of poor foodgrain storage. This paper disagrees with this popular view. The paper shows that industrial organization theory can shed light on this stubborn policy problem.

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