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Abstract

This study evaluates the fiscal and welfare costs of India’s food policy during the 2007-08 global food crisis. India’s domestic grain price stabilization through consumer and producer subsidies and export restrictions is shown to have caused huge fiscal costs and equally large welfare costs, an outcome that is almost always the worst as compared to alternative policy mixes examined. While the most efficient and cost-effective alternatives may not be feasible due to political economy considerations, we argue that there exist some feasible and superior “middle-ground” policy mixes featuring partial relaxations of domestic subsidizations and/or less restrictive border policies.

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