Farm Subsidies in India-Explained Pointwise

Farm Subsidies are  financial assistance or support provided by the government to farmers/agri-businesses /agricultural organizations to supplement their income to reduce their input cost, stabilise prices, ensure food security & protect them from unpredictable market & weather conditions.
Farm subsidies constitute about 2% of India’s GDP. Total subsidy to farmers amount to 21% percent of their farm income, according to Ministry of Agriculture and Farmer Welfare. Farm Subsidies in India

What is the RATIONALE behind Farm Subsidies?

1. Food security: This is often the primary driver. Governments aim to ensure a stable, adequate, and affordable supply of essential food items for their population, especially in countries with large populations like India. Subsidies can encourage farmers to produce sufficient quantities of staple crops, reducing reliance on imports and safeguarding against global food price volatility or supply shocks (e.g., during pandemics or conflicts).

2. Supporting Farmers’ Income and Livelihoods: Farming is inherently risky due to unpredictable factors like weather (droughts, floods), pests, diseases, and market price fluctuations. Subsidies provide a safety net, stabilizing farmers’ incomes and protecting them from severe financial distress, crop failures, or sudden price crashes. 

3. Addressing Input Costs: Subsidies on inputs like fertilizers, seeds, electricity for irrigation, and credit help reduce the overall cost of cultivation for farmers, making farming more financially viable, especially for small and marginal farmers.

4. Promoting Agricultural Productivity and Modernization: Subsidies can incentivize farmers to adopt modern agricultural practices, high-yielding seed varieties (HYVs), mechanization (tractors, tillers), and efficient irrigation techniques (drip irrigation, sprinklers). This is crucial for increasing overall agricultural productivity and efficiency. Some subsidies or related schemes encourage farmers to invest in on-farm infrastructure like borewells, storage facilities, or cold chains.

5. Price Stabilization and Consumer Welfare: By supporting farmers and ensuring stable production, subsidies can help keep consumer food prices stable and affordable, particularly for low-income households. This is often linked to public distribution systems (PDS) that provide subsidized food grains.

6. Sustainable Practices: Subsidies can be designed to encourage environmentally friendly farming practices, such as organic farming, precision agriculture, water conservation, soil health management (e.g., Soil Health Card scheme), and crop diversification (e.g., promoting millets).

7. Rural Development and Employment: Agriculture is a major source of employment in rural areas. Subsidies help sustain rural economies, create jobs (both on-farm and in allied sectors), and slow down distress migration to urban centers.

What are the TYPES of Farm Subsidies?

What are the BENEFITS of Farm Subsidies?

• Support Farm Income: Farm subsidies provide assured income and increase the purchasing power of farmers.
• Food Security: The farm subsidies assure adequate food supply and reduce the chances of food shortage and food inflation.
• Improvement in HDI: Improved farm incomes and food security aids in addressing issues like malnutrition, improving overall living standard.
• Crop diversification: Incentivising “less focussed” crops where subsidies on the crops having nutritional and environmental benefits are promoted. For example, boost to millet production.
• Bridge the Income Divide: According to FAO, 70% of Indian rural households rely mostly on agriculture for a living. Income support for small and marginal farmers bridges the income gap.
• Technology: Increased usage of technology and better infrastructure in agricultural activities lead to increased efficiency, increased profitability and reduce distressed migration.
• Achieve National Goals: Farm subsidies are crucial levers in the achievement of goals such as achieving the US$ 5 trillion economy status, Sustainable Development Goals (SDG). For example, KUSUM programme (subsidy for solar pumps)

What are the CONCERNS related to Farm Subsidies?

• Fiscal Burden: Farm subsidies form about 2% of India’s GDP. High amount of farm subsidies, farm loan waivers put excessive burden on Government finances reducing space for capital expenditure.
• Resource Wastage: It results in overuse and wastage of resources e.g., subsidized electricity for farms can be misused for personal use.
• Environmental Degradation: Fertilizer subsidies have resulted in overuse of Urea and DAP. Overuse of fertlizers leads to eutrophication, water pollution and soil erosion.
• Increase Inequalities: Indirect subsidies more beneficial for already rich farmers due to poor targeting.
• Distorted Cropping Pattern: Farm subsidies especially the MSP has led to distortion in crop pattern e.g., predominance of wheat and paddy in Punjab/Haryana at the cost of pulses, maize, vegetables etc.
• Corruption and Leakages: Farm subsidies are susceptible to corruption and leakages. This leads to welfare loss and additional fiscal burden. Urea meant for farms is diverted to industrial usage or smuggled to neighbouring countries.
• WTO Concerns: India’s farm subsidies are questioned by the developed nations at the WTO. MSP is considered trade distortionary and breaches the Aggregate Measures of Support (AMS) level limited by the WTO norms.

What can be the WAY FORWARD for Farm Subsidies?

• Rationalisation: Farm subsidies should be rationalised according to the demand of programmes based on marketability, affordability and input cost and according to different income groups.
• Investments: There is a need to invest more in agriculture R&D, build better infrastructure to create efficient value chains bringing farmer producer organisations (FPO).
• Incentivise Long-term Capital Formation: Kelkar Committee recommended the phased elimination of subsidies and convert them to capital investments.
• Credit Eligibility Certificates: These certificates would enable landless tenant cultivators to obtain agricultural credit.
• Technology: Technological improvement like Aadhaar, direct benefit transfer can be used to eliminate inclusion and exclusion errors. The third party verifications of beneficiary will help in eliminating the free riders and leakages.
• Legislative Measures: Contract Farming Act, APMC reforms to reduce dependence on the government.
• International Measures: Under the WTO’s Nairobi package, developed and developing nations have committed to phase-off export subsidies. Rather than limiting the total agricultural value production, subsidies should be limited depending on individual products such as cotton, wool.

Conclusion:
Farm subsidies have proven to be vital in supporting agriculture and providing income security to farmers. The Government should take steps to rationalize farm subsidies and invest more on capital formation, R&D in agriculture. This will improve agriculture productivity and make agriculture more remunerative.