Redistribution Through Prices in Indian Agricultural Markets.
(with Shresth Garg)
How do government programs that distort prices in agricultural markets affect producers and
consumers along the income distribution? We study the distributional effects of three such programs
in Indian agricultural markets: fertilizer subsidies, procurement of crops at minimum support prices
(MSP), and sale of subsidized grains to households. These interventions directly impact hundreds of
millions of people and cost about 1.2% of India's GDP. To examine their effects, we estimate a
structural model of supply and demand with heterogeneous risk-averse producers, who choose a
portfolio of crops and crop-specific inputs, and heterogeneous households who make consumption
decisions. Using the estimated structural parameters, we solve for counterfactual equilibria in
which these interventions are phased out. On the demand-side, we find these programs to be
progressive. In their absence, consumption and expenditures of lower-income households would be
affected more adversely. On the supply-side, we find these programs to be (weakly) regressive.
Higher fertilizer prices, in the absence of subsidies, would be compensated by higher output prices
so impact on farmer welfare would be minimal. Under no government-procurement at MSP, richer farmers
would experience a greater welfare loss, while some of the poorest farmers would gain -- a result
driven partly by the inequitable implementation of the procurement program.
Subsidies Trump Tariffs: Case of Utility-Scale Solar in India.
(with Shresth Garg)
Policymakers often intervene in markets to protect domestic producers against foreign competitors.
Two such interventions are import tariffs and production subsidies,
both of which are, in general, costly. In this paper, we study the relative magnitudes
of these costs in the context of the Indian utility-scale solar sector. The Indian government, in
recent years, has relied on both import tariffs and production subsidies
to support the domestic solar module manufacturing industry. Using a structural
model of the solar panel/module industry and its downstream counterpart – the solar power plant
industry, we quantify the short-run costs of expanding the size and
share of domestic solar module manufacturing using tariffs and subsidies. We find
small net costs associated with production subsidies and much larger costs associated
with import tariffs. Specifically, in our main counterfactual, we find that expanding
domestic output using just import tariffs reduces welfare by 46% relative to baseline,
while doing so using just production subsidies reduces welfare by less than 1%.