Model Answer
0 min readIntroduction
Agricultural subsidies are government interventions designed to support farmers and the agricultural sector. In India, these subsidies have evolved significantly since independence, initially aimed at ensuring food security and promoting self-sufficiency. However, their current form is often criticized for being distortionary, fiscally unsustainable, and environmentally damaging. Recent concerns regarding the WTO disputes and the need for a more sustainable agricultural model necessitate a critical review and rationalization of these subsidies. The Economic Survey 2022-23 highlighted the need for shifting from price-based subsidies to direct income support.
Types of Agricultural Subsidies in India
Agricultural subsidies in India can be broadly categorized into the following types:
1. Price Support (Minimum Support Price - MSP)
- Description: The MSP is a price floor set by the government for certain agricultural commodities, ensuring farmers a guaranteed price for their produce.
- Rationale: Protects farmers from price fluctuations and ensures a stable income.
- Impact: Leads to procurement of surplus produce, often resulting in storage issues and potential wastage. Distorts market signals and can discourage diversification.
- Commodities Covered: Currently covers 23 commodities (as of 2023-24).
2. Input Subsidies
- Fertilizer Subsidies: Significant subsidies are provided on fertilizers (Urea, DAP, MOP) to make them affordable for farmers.
- Seed Subsidies: Subsidies are offered on improved seeds, particularly for high-yielding varieties.
- Irrigation Subsidies: Subsidies on electricity for irrigation and on canal water charges.
- Impact: Encourages overuse of inputs, leading to environmental problems like soil degradation and water depletion.
3. Credit Subsidies
- Interest Subsidies: Farmers are provided with loans at subsidized interest rates (currently 7% for short-term loans).
- Debt Waivers: Periodic debt waivers are announced by governments to alleviate farmer distress.
- Impact: While providing immediate relief, debt waivers create moral hazard and discourage responsible credit behavior.
4. Other Subsidies
- Transportation Subsidies: Subsidies for transporting agricultural produce to markets.
- Storage Subsidies: Incentives for creating storage infrastructure.
- Export Subsidies: Though largely phased out due to WTO regulations, some export incentives are still provided.
Rationalizing Agricultural Subsidies
Rationalizing agricultural subsidies requires a multi-pronged approach:
1. Shifting from Price-Based to Income-Based Support
- PM-KISAN: Expanding the coverage and increasing the amount under the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme, providing direct income support to farmers.
- Decoupled Payments: Introducing decoupled payments, where support is linked to landholding rather than production, reducing market distortions.
2. Reforming Input Subsidies
- Nutrient-Based Subsidy (NBS): Strengthening the NBS scheme for fertilizers, promoting balanced fertilization and reducing overuse.
- Direct Benefit Transfer (DBT): Implementing DBT for fertilizer subsidies, ensuring that benefits reach intended beneficiaries and reducing leakages.
- Promoting Organic Farming: Incentivizing organic farming practices to reduce reliance on chemical fertilizers and pesticides.
3. Improving Credit Delivery and Reducing Debt Distress
- Strengthening Agricultural Credit Societies: Improving the functioning of Primary Agricultural Cooperative Societies (PACS) to enhance credit access.
- Crop Insurance: Expanding the coverage and effectiveness of the Pradhan Mantri Fasal Bima Yojana (PMFBY) to provide risk mitigation to farmers.
- Promoting Financial Literacy: Educating farmers about responsible credit management.
4. Investing in Agricultural Infrastructure
- Developing Cold Storage Facilities: Increasing investment in cold storage and warehousing infrastructure to reduce post-harvest losses.
- Improving Irrigation Efficiency: Promoting micro-irrigation techniques (drip and sprinkler) to conserve water.
- Strengthening Market Linkages: Improving market infrastructure and facilitating direct farmer-consumer linkages.
| Subsidy Type | Current Issues | Rationalization Measures |
|---|---|---|
| MSP | Market distortion, surplus procurement, storage issues | Shift to income support, diversification incentives |
| Fertilizer Subsidies | Overuse, environmental damage, fiscal burden | NBS, DBT, promote organic farming |
| Credit Subsidies | Moral hazard, debt distress | Strengthen PACS, crop insurance, financial literacy |
Conclusion
Rationalizing agricultural subsidies is crucial for ensuring the long-term sustainability and competitiveness of the Indian agricultural sector. A shift towards direct income support, coupled with reforms in input subsidies and investments in infrastructure, can create a more efficient, equitable, and environmentally sustainable agricultural system. This requires a holistic approach, considering the diverse needs of farmers and the broader economic context. The success of these reforms will depend on effective implementation, monitoring, and continuous evaluation.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.