Model Answer
0 min readIntroduction
Subsidies are a crucial component of India’s agricultural policy, aimed at enhancing productivity and ensuring food security. However, their nature has evolved over time. Subsidies can be broadly categorized as explicit and implicit. Explicit subsidies involve direct cash transfers or price support, while implicit subsidies are provided through underpricing of inputs like water and power. Post-economic reforms in 1991, India witnessed significant changes in its subsidy regime, particularly concerning irrigation and fertilizers, driven by fiscal constraints and the need for a more efficient allocation of resources. Understanding these trends is vital for assessing the effectiveness of agricultural policies.
Distinguishing Explicit and Implicit Subsidies
Explicit Subsidies: These are direct and easily quantifiable financial assistance provided by the government to producers or consumers. Examples include direct payments to farmers, price differences between the Minimum Support Price (MSP) and market price, and input subsidies like those on fertilizers. They are transparent and appear directly in the government’s budget.
Implicit Subsidies: These are indirect benefits provided to producers or consumers, often through underpricing of resources. A prime example is the underpricing of irrigation water and electricity, leading to overuse and resource depletion. These subsidies are often difficult to quantify accurately and are not always reflected in the government’s budget as direct expenditure.
Trends in Explicit Subsidies on Irrigation
Prior to the 1990s, irrigation subsidies were largely implicit, stemming from heavily subsidized canal water and electricity for pumping groundwater. Post-reforms, there was a gradual shift towards recognizing the need for cost recovery. However, explicit subsidies on irrigation remained limited. The focus shifted to improving irrigation efficiency through schemes like:
- Accelerated Irrigation Benefit Programme (AIBP): Launched in 1996-97, AIBP aimed to accelerate the completion of ongoing major and medium irrigation projects. While not a direct subsidy, it involved substantial central government funding.
- Pradhan Mantri Krishi Sinchayee Yojana (PMKSY): Launched in 2015, PMKSY focuses on ‘Per Drop More Crop’ and aims to enhance water use efficiency. It includes components like Micro Irrigation and Command Area Development & Water Management.
Data indicates that the share of irrigation in total agricultural subsidies has remained relatively small, typically below 10% (as of 2019-20, based on knowledge cutoff). The primary challenge remains the widespread provision of free or heavily subsidized electricity for groundwater irrigation, representing a significant implicit subsidy.
Trends in Explicit Subsidies on Fertilizers
Fertilizer subsidies have historically been a major component of India’s agricultural subsidy regime. Post-reforms, the fertilizer subsidy landscape underwent several changes:
- Initial Phase (1991-2000s): The initial years saw attempts to reduce fertilizer subsidies as part of fiscal consolidation. However, political considerations often led to their reinstatement.
- Nutrient Based Subsidy (NBS) Scheme (2010): NBS replaced the previous fixed-per-tonne subsidy system with a subsidy based on the nutrient content of fertilizers (Nitrogen, Phosphorus, Potassium). This aimed to promote balanced fertilization.
- Direct Benefit Transfer (DBT) in Fertilizers (2018 onwards): DBT was introduced to reduce leakages and ensure that subsidies reach the intended beneficiaries. This involved direct transfer of subsidy amounts to farmers’ accounts.
Statistics: According to data from the Department of Fertilizers, the total fertilizer subsidy expenditure increased significantly in recent years, reaching approximately ₹1.75 lakh crore in FY23 (based on knowledge cutoff). This increase was driven by rising global fertilizer prices, exacerbated by geopolitical factors. The share of fertilizer subsidies in total agricultural subsidies consistently remains the highest, often exceeding 70%.
However, despite DBT, challenges remain, including delays in subsidy disbursement and the continued presence of black marketing.
| Subsidy Type | Pre-1991 | Post-1991 (Trends) |
|---|---|---|
| Irrigation | Primarily Implicit (Subsidized water & electricity) | Shift towards explicit schemes (AIBP, PMKSY), but implicit subsidies remain dominant. |
| Fertilizers | Fixed per tonne subsidy | NBS scheme, DBT implementation, increasing subsidy expenditure due to global price volatility. |
Conclusion
In conclusion, while India has attempted to rationalize its subsidy regime post-economic reforms, the trends reveal a complex picture. Irrigation subsidies remain largely implicit, while fertilizer subsidies have transitioned through various schemes, with increasing expenditure in recent years. The effectiveness of these subsidies is hampered by leakages, inefficiencies, and the need for a more holistic approach to water and nutrient management. A shift towards sustainable agricultural practices and improved targeting of subsidies is crucial for ensuring long-term food security and agricultural sustainability.
Answer Length
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