The question “What are the direct and indirect subsidies provided to the farm sector in India? Discuss the issues raised by the World Trade Organization(WTO) in relation to agricultural subsidies." was asked in the Mains 2023 GS Paper 3. Let us look at the model answer to this question.
Answer: A subsidy is defined as a form of financial assistance paid to an economic sector (institution, business or individual) to achieve certain policy objectives. Both Central and State governments direct and indirect subsidies to support agricultural production and alleviate the financial burdens on farmers.
Direct subsidies provided to farm sector in India: Those subsidies which involve an actual payment of funds toward a particular individual, group, or industry. These subsidies are delivered in the form of cash subsidies to the consumers. The beneficiary purchases the commodity at the market price. The following are the example of Direct Subsidies in India:
- Subsidies in the form of direct cash transfer: Here the cash is given to farmers directly.
- For example, PM Kisan Samman Nidhi Scheme under which support of Rs.6000/- per year is provided to all land holding farmer families across the country, irrespective of land size, in three equal instalments.
- Subsides in the form of farm loan waiver: Farm loans are loans taken from the banks by the farmers for agriculture requisites and production. In a farm loan waiver scheme, the Centre or the state Government repays the loan to the banks on behalf of the farmers, simply by using public money collected in the form of taxes.
Indirect subsidies provided to farm sector in India: Those subsidies which are provided in the form of discounts to lower the price of a particular commodity. It does not include direct cash payments to the beneficiary. It is intended to increase the consumption of a particular commodity by lowering its price in the market. The following are the example of Indirect Subsidies in India:
- Minimum Support Price (MSP): The government provides a price guarantee to farmers for certain crops, such as wheat, rice, and sugarcane, by purchasing their produce at a fixed minimum support price.
- Fertiliser Subsidies: Subsidies are granted to make fertilisers more affordable for farmers, promoting the use of essential nutrients in agriculture.
- For Example, the government subsidised urea fertiliser to ensure its affordability for farmers.
- Subsidies in the irrigation sector: Farmers receive subsidies for the installation of irrigation systems like drip irrigation, sprinklers, and canals to enhance water efficiency in agriculture.
- For Example, the Pradhan Mantri Krishi Sinchai Yojana (PMKSY) provides subsidies for irrigation projects.
- Interest rate Subsidies: Farmers often receive loans at reduced interest rates, making credit more accessible and affordable for agricultural activities.
- For Example, the Kisan Credit Card scheme offers affordable credit to farmers.
- Crop Insurance Subsidies: Subsidies are given to reduce the premium cost for crop insurance, protecting farmers from losses due to adverse weather or other factors.
- For Example, Pradhan Mantri Fasal Bima Yojana (PMFBY) offers subsidised crop insurance to Indian farmers.
- Electricity Subsidies: Many states in India provide subsidised electricity to farmers for irrigation, reducing the cost of water for agricultural purposes.
- Infrastructure Subsidy: Subsidies are allocated for the construction and maintenance of rural infrastructure like roads, cold storage facilities, and market yards.
- For Example: Subsidised loans for setting up cold storage units.
- Research and Extension Services: The government invests in research and extension services to improve agricultural practices, and these services indirectly benefit farmers.
Following issues have been raised by the World Trade Organization(WTO) in relation to agricultural subsidies in India:
- Market Distortion: The WTO argues that agricultural subsidies can distort international markets. Subsidies, such as the Minimum Support Price (MSP) provided by India, can lead to underpricing of Indian agricultural products in the international market. This can create an unfair competition environment in the global agricultural trade system.
- Trade Barriers: Subsidies can act as trade barriers, making it difficult for unsubsidized foreign producers to compete in the market where subsidised goods are sold.
- Overproduction: Subsidies can lead to overproduction of certain crops, which can further distort the market and lead to wastage.
- Environmental Impact: Overuse of fertilisers and water for irrigation, encouraged by subsidies, can lead to environmental degradation.
- Inequity: The benefits of subsidies often go to larger farmers rather than small-scale farmers who need them the most.
India's farm sector is heavily subsidised, aiming to support the livelihoods of millions of farmers and ensure food security. However, these subsidies have been a topic of dispute within the WTO. Addressing this issue effectively is essential to promote a fair and equitable global agricultural trade system.