Household response to food subsidies: Evidence from India

This paper uses household survey data to examine the impact of a food subsidies program on food consumption, caloric intake and calories from different foodgroups for poor households in India. The national food security program (PDS) for households below the poverty line takes the form of a monthly quota of food grains at substantially discounted prices; program rules differ by state and, in some states, by household size. The effect of the program is studied by exploiting geographic and household size specific variations in the value of the subsidy. Consumption data from six rounds (2002-2008) of the NSSO Socio-Economic surveys is used. In agreement with other literature on food subsidies, this paper finds small elasticities for cereal consumption and calories with respect to the value of the subsidy. However an increase in the subsidy amount is found to increase calories by more than what is implied by its impact on cereal consumption alone. This is an important indicator that households benefit from the program in terms of overall food intake and not just through the food grains directly provided by the PDS. The elasticities for overall calories and calories from all food groups are positive and significant. Compared to results from studies on pure price subsidies which find zero or negative effects, the results found here suggest that quotas may be more effective at improving nutrition. Finally, taking into account differences in the state wise functioning of the program, a smaller effect is found in states that have higher levels of corruption.