
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
www.rsisinternational.org
the beginning, the government kept increasing subsidies to make essential items more affordable for weaker
section of society, as the data shows a long-term rise in food subsidies during the period. The steady rise in
MSP/procurement price is the main factor driving the increase in economic cost and food subsidy for both wheat
and rice. Comparatively, wheat’s economic cost components exhibit more stable growth compared to rice
.MSP/procurement price has steadily increased as a dominant share of the economic cost for both wheat and
rice, especially in recent years. In contrast, the share of procurement incidentals and distribution costs has either
remained stable or declined, showing reduced relative importance. This highlights that rising MSP is the key
driver of overall cost escalation in food grains, while efficiency in distribution has slightly improved over time.
The results show that MSP/Procurement Price and Distribution Cost have a significant and positive effect on
Economic Cost, while Procurement Incidentals have a smaller, statistically insignificant effect. This indicates
that policy efforts to manage economic cost should prioritize rationalizing MSP increases and improving
efficiency in distribution channels rather than focusing only on procurement incidentals. Overall, the data shows
that the steady rise in MSP/procurement price is the main factor driving the increase in economic cost and food
subsidy for both wheat and rice. Procurement incidentals and distribution costs affect the cost only in some years,
showing irregular changes, but MSP remains the most consistent and major contributor. Since the Food
Corporation of India (FCI) and state agencies purchase large volumes of rice and wheat under the procurement
system, even marginal MSP hikes have a compounding impact on the total fiscal burden. The distribution cost,
which includes transportation, storage, handling, and fair price shop margins, has also emerged as a major
contributor to the rising economic cost, particularly after 2020. During and after the COVID-19 pandemic, food
distribution under welfare schemes such as the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY)
expanded significantly, increasing both logistical and administrative expenses. Moreover, pandemic-induced
disruptions such as higher fuel costs, longer transport distances, and increased handling requirements further
elevated the distribution component. Consequently, the combined rise in MSP and distribution costs has made
them the primary drivers of India’s escalating economic cost of food grains. The findings suggest that containing
the growth of economic cost requires a balanced and evidence-based policy approach. Moderating annual MSP
increases and linking them with productivity or market trends can prevent unsustainable fiscal pressure.
Simultaneously, optimizing the distribution network through investments in modern storage infrastructure,
improved logistics, and digital monitoring can help lower operational inefficiencies. Expanding DBT systems in
regions with robust market structures may further reduce distribution costs over time. Thus, effective
management of MSP policies and distribution systems can ensure fiscal sustainability while maintaining India’s
commitment to food security.
REFERENCES
1. Sharma, V. P., & Alagh, M. (2013). Food subsidy in India: Its components, trends, causes and reforms
for public policy. Indian Institute of Management Ahmedabad (IIMA) Working Paper No. 2013-08-
02. R
2. Shome, S., & Lalvani, M. (2017). India’s burgeoning food subsidies: How much can we blame the
Food Corporation of India? The Economists’ Voice, 14(1–2), 1.
3. Ghabru, M. G., Devi, G., & Rathod, N. (2017). Public distribution system in india: key issues and
challenges. Indian Journal of Economics and Development, 13(4), 747-754
4. Jha, R., Gaiha, R., Pandey, M. K., & Kaicker, N. (2013). Food subsidy, income transfer and the poor:
A comparative analysis of the public distribution system in India's states. Journal of Policy
Modeling, 35(6), 887-908.
5. Government of India. (2023). Economic Survey 2022–23. Ministry of Finance, Department of
Economic Affairs.
6. NITI Aayog. (2021). Reforming the food management system in India: Towards an efficient and
sustainable framework. NITI Aayog Discussion Paper, Government of India.
7. Food Corporation of India. (2021). Trends in procurement, buffer stock, and distribution cost during
COVID-19: FCI analysis report. FCI Policy & Planning Division, New Delhi.
8. Dev, S. M., & Sengupta, R. (2020). COVID-19: Impact on the Indian economy. Indira Gandhi Institute
of Development Research (IGIDR), Mumbai.
9. Kaur, G., & Sidhu, R. S. (2022). Rising food subsidy and the fiscal implications of MSP and
procurement operations in India. Economic & Political Weekly, 57(18), 45–52.