This paper analyses the rural food sector of the Indian Republic in an intertemporal growth context. A model is developed which includes the government's conflict between its poverty reducing attempts through public distribution of food, subsidized issue and support food prices and long term developmental goals. The ARDL cointegration procedure for mixed order dynamic processes identifies the major determinants of rural head count poverty for the period, 1953-2000.
The long run elasticity estimates clearly show the real consumer subsidised issue price and the real producer support price dominate the quantity effects of the per capita public distribution on rural head count poverty. Development expenditure and measures of productivity and demographic supply are also found to be important determinants of long run rural poverty.
In contrast, the real issue and producer prices do not have easily identifiable influences on the short run equilibrating adjustments in rural poverty. The model predicts that rural head count poverty, which at 27.6% in 2000 is below trend, will increase to between 29.1 % to 30.3% in 2001. The significant cause of the projected increase is the sizeable increase in the issue price of rice (relative to the CPI for agricultural workers) from 1999 to 2000.
The paper argues that, while productivity and demographic supply improvements are important, real issue and support prices for the major staples, wheat and rice are also key determmants of long term trends in rural poverty. However, because these relative prices have complicated short term effects, the authorities should not manipulate real foodgrain issue and producer prices to achieve short term goals. Pricing policies should be designed to achieve desired long term resource allocation.