Maurice Landes

Indian Wheat and Rice Sector Policies and the Implications of Reform

During 1998-2002, India experienced record public surpluses of wheat and rice, sharply higher government grain subsidy outlays, and declining per capita consumption of wheat and rice. By 2006, despite continued high subsidies and sluggish domestic consumption, India developed a large wheat deficit because of reduced price incentives, weak yield growth, and rising subsidized consumption. The pronounced market cycles and declining per capita consumption for India’s major food staples are creating pressure for Indian policymakers to adjust longstanding policies. While there has been no political consensus on more fundamental reform, recent policy changes have moved toward better targeting of food subsidies to low-income consumers, decentralization of government operations, and slowed growth in producer price subsidies. Decentralization is likely to reduce government costs with little impact on producers, consumers, or trade. Lower price supports would aid consumers at the cost of producers, and sharply lower government costs. Adoption of a U.S.-style deficiency payment program could maintain producer support with less market distortion and lower cost, but would require devising a viable system to make and monitor farmer payments.

Growth and Equity Effects of Agricultural Marketing Efficiency Gains in India

Agriculture is the largest source of employment in India, and food accounts for about half of consumer expenditures. Moving agricultural products from the farm to consumers more efficiently could result in large gains to producers, consumers, and India’s overall economy. This analysis uses a computable general equilibrium model with agricultural commodity detail and households disaggregated by rural, urban, and income class to study the potential impacts of reforms that achieve efficiency gains in agricultural marketing and reduce agricultural input subsidies and import tariffs. More efficient agricultural marketing generates economywide gains in output and wages, raises agricultural producer prices, reduces consumer food prices, and increases private consumption, particularly by low-income households. These gains could help to offset some of the medium-term adjustment costs for some commodity markets and households associated with reducing agricultural subsidies and tariffs.