Role of Government Procurement Policies on Food Grain Inflation in India: A Long-Term Analysis

Procurement policies of Government of India, primarily through the implementation of Minimum Support Price (MSP) and through the working of the Food Corporation of India (FCI), occupy a significant role in the food-grain markets in India. The important objectives of these policies are to ensuring price stability, food security, and economic welfare through reasonable payment to the farmers. However, these policies also have comprehensive effects for market prices, local production patterns, and fiscal sustainability. This study examines the dynamic relationship between Minimum Support Price (MSP), government procurement, buffer stock, and fluctuations in food-grain prices in India over the period of 1994 to 2023. The study uses the Autoregressive Distributed Lag (ARDL) model for the purpose. The analysis employs annual data on food grain price inflation, MSP, procurement quantity, and buffer stock levels for evaluating both short-run and long-run effects. The results confirm that there exist a stable long-run cointegrating relationship among these variables. Empirical findings show that increases in MSP significantly increase food grain inflation in both short and long runs, indicating a strong cost-push effect. Conversely, higher levels of procurement and buffer stock, particularly with lagged effects, show an inflation-dampening tendencies. The error correction term in the model is negative and statistically significant, showing a rapid adjustment toward long-run equilibrium. These results highlight the importance of a balanced policy management. Although, MSP plays an important role in ensuring farm income stability, unrestricted increases may intensify inflationary pressures. Strengthening procurement processes and well-organized buffer stock management are vital to justifying price volatility and ensuring food price stability in India.