Food subsidy

Indian Economy glossary

Topic: Agricultural Marketing, MSP, Buffer Stocks and PDS · NCERT: Beyond NCERT

Meaning

The food subsidy is the money the Centre spends so the poor can get grain cheaply or free.

Food subsidy = (Economic cost − Central issue price) × quantity issued + cost of carrying buffer stocks

  • Economic cost is the full cost of grain: MSP plus buying, storage and transport costs.
  • The central issue price (CIP) is the price at which the Centre releases grain to states.
  • The carrying cost is the cost of holding buffer stocks: storage, interest and damage.

The food subsidy is about ₹2 lakh crore a year, one of the Centre's largest bills.

Example

The CIP used to be ₹3, ₹2 and ₹1 per kg for rice, wheat and coarse grains. From 1 January 2023, NFSA grain became free, so the CIP is now zero. The whole economic cost of NFSA grain is therefore subsidy.

Don't confuse with

  • Input subsidies: these lower farmers' costs for fertiliser, power, water, seed and credit. The food subsidy lowers the price consumers pay for grain.

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