This project investigates the implications of agricultural price support programs (MSP), which offer a minimum price to farmers of certain staple crops, and farm input price subsidies, for consumer welfare and misallocation, measured as the productivity gap between agriculture and non-agriculture. Through the lens of a quantitative model, our results suggest that if either the MSP or the input price subsidy is removed, the agricultural productivity gap rises, with the increase being significantly larger when the input price subsidy is removed. The removal of either policy raises welfare, owing to the reduced tax burden on agents from not having to finance these policies.
STEG Project Policy Brief
• Research Theme 3: Agricultural Productivity and Sectoral Gaps,
Cross-Cutting Issue 3: Inequality and Inclusion
Support Prices, Input Subsidies and Misallocation in Indian Agriculture
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