India is a country of subsidies. There are varieties of subsidies that the Central and state governments give to the people.

One of the most important such concessions is the food subsidy.

So what is food subsidy?

Food subsidy is provided by the Central government in the budget of the Department of Food and Public Distribution to meet the difference between the economic cost of foodgrains and their sales realisation at central issue prices for Targeted Public Distribution System and other welfare schemes.

In addition, the central government also procures foodgrains for meeting the requirements of buffer stock. Hence, part of the food subsidy also goes towards meeting the carrying cost of buffer stock.

The subsidy is provided to the Food Corporation of India, which is the main instrument of the government for procurement and distribution of wheat and rice under TPDS and other welfare schemes and for maintaining the buffer stock of foodgrains as a measure of food security.

Eleven states, namely Madhya Pradesh, Uttar Pradesh, Chhattisgarh, West Bengal, Uttaranchal, Tamil Nadu, Orissa, Karnataka, Kerala, Andaman & Nicobar Island and Gujarat have undertaken the responsibility of not only procuring foodgrains from within the state but also distributing the same to the targeted population under TPDS and other welfare schemes.

Under this scheme of decentralisation procurement, state specific economic cost is determined by the Government of India and the difference between the economic cost is so fixed and the Central Issue Prices is passed on to the State as food subsidy.

The quantum of food subsidy depends on the level of procurement of foodgrains and offtake under TPDS and other welfare schemes. Both procurement and offtake are determined by the market prices prevailing in respect of agricultural commodities.

A provision of Rs 23,986 crore (Rs 239.86 billion) was made in 2006-07 for food subsidy. This also includes a provision of Rs 367 crore (Rs 3.67 billion) as buffer stock against the estimate of Rs 331 crore (Rs 3.31 billion) in 2005-06.