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Evaluation of Farm Subsidies

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June 24, 2019

What is the issue?

  • There is an increasing discussion on replacing farm subsidy with direct cash transfer.
  • But subsidies and cash transfers may not be enough to end farmers’ woes; capital investments in agriculture are the need of the hour.

What is the current subsidy share?

  • The government spent about Rs. 2.56-lakh crore on various subsidies for the farm sector in 2018-19.
  • This is an increase of 43% over the previous year; the rise is primarily due to the higher MSP on crops.
  • For 2019-20, farm subsidies are set to increase further to Rs.2.77-lakh crore.
  • An Indian farmer enjoys numerous subsidies ranging from free power, water, to heavily discounted fertilizer.
  • They also extend to interest subvention on loans, discounted premium on crop insurance and minimum support prices for crops.

What are the implications?

  • Capital Investment - Farm subsidies are a drain on public finance.
  • Subsidies are reducing the share of money that goes for capital investment.
  • This, in turn, is a key reason for the sufferings of farmers.
  • It’s so because, offsetting high cost on inputs and helping farmers produce and earn more, initially creates an illusion of a healthy farm sector.
  • But eventually, problems arising from lack of infrastructure and market inefficiency show its own negative impact.
  • [Today, only about 15% of the APMCs have cold storage facilities.
  • Also, less than 50% of mandis in the country have weighing machines.]
  • Unregulated use - The other concern due to input subsidies for agriculture is the unmindful use of resources such as water and power.
  • Input subsidies including those on urea have resulted in overuse of nitrogenous fertilisers and spoilt soil health.
  • Likewise, subsidies on power have resulted in depletion of the groundwater.
  • Cropping pattern - Subsidies have also skewed the cropping pattern, which has, in the process, taken a toll on the environment as well.
  • Monoculture has resulted in an increase in pest and disease attacks on crops and higher usage of chemical fertilisers.
  • Evidently, subsidy-driven agriculture is not sustainable.

What could be done?

  • Rationalizing subsidies - Subsidising the cost of inputs is not going to end the problems of the marginal farmers of India.
  • Completely stopping subsidies may not be possible now given its reach and popularity; but it can be rationalised.
  • Subsidies could be linked to the size of the farm-holding, rather than offering them to every other farmer.
  • Direct transfers - The government can see if these subsidies can be paid via DBT (Direct Benefit Transfer) so as to plug leakages.
  • Capital Investment - Gradually, the government should withdraw subsidies and possibly convert them to capital investments in the sector.
  • The impact of capital investment on both agricultural yield and poverty will be far higher than that of subsidies.
  • The promised investments in agriculture (Rs. 25-lakh crore over 5 years) can be made in -
  1. building a national-level warehousing grid with smaller warehouses near the farm-gate
  2. setting up of agri-processing centres
  3. providing assaying and grading machinery at mandis
  • Exports - There is the need for long-term policies on export trade, for the government departments to engage with exporters on a regular basis.
  • This can help keep farmers aligned with the global demand/supply and price situations.
  • Technical committee - There are talks about a technical committee with ICAR-NIAP as knowledge partner to work on building an agri-market intelligence system.
  • This process needs to be fast-tracked.
  • The system will put out price and demand forecasts for various major foodgrains and price-sensitive horticulture crops.
  • Land - The government should look at ways of aggregating the small land-holdings and help farmers draw benefit from farm mechanization.

 

Source: Business Line

Quick Facts

Indian Council of Agricultural Research (ICAR)         

  • The ICAR is an autonomous organisation under the Department of Agricultural Research and Education (DARE), Ministry of Agriculture and Farmers Welfare.
  • It was formerly known as Imperial Council of Agricultural Research.
  • It was established in 1929 as a registered society under the Societies Registration Act, 1860, in pursuance of the report of the Royal Commission on Agriculture.
  • The ICAR has its headquarters at New Delhi.
  • It is the apex body for co-ordinating, guiding and managing research and education in agriculture including horticulture, fisheries and animal sciences.
  • The ICAR has played a pioneering role in ushering Green Revolution and subsequent developments in agriculture in India.

ICAR-National Institute of Agricultural Economics and Policy Research (NIAP)

  • The ICAR-National Institute (formerly Centre) of Agricultural Economics and Policy Research (NIAP) was established by the ICAR in 1991.
  • The scope of work include -
    1. strengthening agricultural economics and policy research in the national agricultural research system
    2. application of principles of economics in planning and evaluation of agricultural R&D and policy research to promote science-led agricultural and rural development
  • The Institute also acts as a think tank of ICAR and helps it to actively participate in policy making.
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