Impact of American Investment in India

The study revealed the strong impact of policy measures on production, procurement, stocks and trade. We detected several market distortions and mounting fiscal costs. Wheat and rice supply strongly and significantly respond to the minimum support price (MSP). Wholesale prices at planting or lagged harvest time prices are largely irrelevant for production. The Food Corporation of India’s (FCI’s) procurement volume is driven by the production level and the difference between the MSP and market price. The signs of the estimated price elasticities of demand are consistent with the theory; however, for rice they turned out to be insignificant. Rice consumption turned out to be strongly influenced by distribution of subsidised rice, which can be linked to high coverage and subsidy under the public distribution system (PDS). In the case of wheat, the influence of subsidised wheat is much less pronounced, probably due to weaker functioning of the PDS for this grain. The public stock analysis suggests higher storage losses for rice (10 per cent) than for wheat (2 percent). Public stocks are found to strongly crowd out private stocks but not to the same extent as public stocks are build up. Total exports are highly distorted by trade regulations. Therefore, there
was no correlation detected between exports and domestic vs. international price difference in the case of rice and in the case of wheat, the correlation turned out to be contrary to theoretical expectations. The analysis of intra-year data revealed strong seasonality in prices, procurement and stock levels, in particular, for wheat (this was lower for rice).