What Is the Cost of Providing One Rupee of Support to the Poor?

The enduring equity-efficiency debate on India’s food policy revolves around two key issues—leakage of cereal grains from the system, and reduction in benefits at the extensive margin to reduce the fiscal burden. Using descriptive analysis and costing techniques, it is found that the public distribution system works well in regions with low market access, high cereal prices, and high poverty. It protects households from inflation through a price ceiling that automatically adjusts the value of the real implicit transfer. However, the biggest weakness is its one-size-fits-all approach. Even without leakages, some states will not benefit as much from such a costly cereal subsidy because of low market prices for cereals in those states. Overall, it is found that inclusivity and the possibility of leakage reduction, thereof, has the potential to deliver a net gain of $1 billion in social welfare from the status quo.