India needs to snap out of the agricultural subsidy spiral

Source: The post “India needs to snap out of agricultural subsidy spiral” has been created, based on “India needs to snap out of agricultural subsidy spiral” published in “Indian Express” on 18th May 2026.

UPSC Syllabus: GS Paper-3- Indian Economy

Context: India’s agricultural subsidy system has played an important role in ensuring food security, supporting farmer incomes and maintaining political stability in rural areas. However, the rising burden of fertiliser subsidies, MSP procurement, free electricity and cash transfers has raised concerns regarding fiscal sustainability and economic efficiency.

Reasons Behind Rising Agricultural Subsidies

a) Protection of Farmer Livelihoods

• Indian farmers face multiple challenges such as small landholdings, fluctuating prices and dependence on monsoon rainfall.
• Therefore, subsidies help farmers reduce cultivation costs and sustain their incomes.

b) Rise in Global Input Prices

• The conflict in the Middle East has increased global crude oil and fertiliser prices significantly.
• The depreciation of the Indian rupee has further increased import costs for fertilisers and fuel.
• Despite these global pressures, the government has kept retail fertiliser prices stable for Indian farmers.

c) Political Compulsions

• Political parties fear electoral backlash and farmer protests if subsidies are reduced.
• As a result, governments continue expanding subsidies instead of undertaking difficult reforms.

d) Food Security Concerns

• Subsidies and MSP support encourage the production of wheat and rice required for the Public Distribution System.
• This support system has helped India maintain food security for a large population.

Economic and Fiscal Implications

a) Huge Fiscal Burden on Government

• The government provides massive subsidies on fertilisers such as urea and DAP.
• Farmers pay only a small fraction of the actual market cost of these inputs.
• According to the article, the fertiliser subsidy for a small farmer cultivating 2.5 acres can exceed Rs 1 lakh annually.

b) Increase in Fiscal Deficit and Public Debt

• Excessive subsidy expenditure increases the fiscal burden on the government.
• Continuous borrowing to finance subsidies can increase public debt and weaken macroeconomic stability.

c) Pressure on Foreign Exchange Reserves

• India imports crude oil and fertilisers in large quantities.
• Therefore, high global prices and subsidies create pressure on India’s foreign exchange reserves.

d) Distortion in Cropping Patterns

• Cheap fertilisers, free electricity and MSP procurement encourage excessive cultivation of wheat and paddy.
• This discourages crop diversification towards pulses, oilseeds and millets.

e) Environmental Degradation

• Excessive use of subsidised fertilisers damages soil health and reduces long-term productivity.
• Free electricity has also contributed to the over-extraction of groundwater in many states.

f) Delay in Structural Reforms

• Large subsidies reduce the urgency for agricultural reforms and market liberalisation.
• Governments become risk-averse and avoid reforms due to political concerns.

Political Implications Highlighted in the Article

a) Growth of Populist Politics

• Subsidies and welfare schemes are increasingly used as political tools to gain electoral support.
• This has weakened fiscal discipline across political parties.

b) Fear of Farmer Resistance

• The government believes that farmers strongly oppose reforms such as changes in MSP and market regulations.
• This perception has discouraged policymakers from introducing major agricultural reforms.

c) Lack of Fiscal Seriousness

• The article highlights that many political parties prioritise short-term political gains over long-term economic sustainability.
• As a result, difficult but necessary policy decisions are postponed.

d) Risk-Averse Governance

• Governments try to avoid political risks by expanding subsidies instead of implementing structural reforms.
• This creates what the article calls a “paradox of risk”, where avoiding reforms ultimately worsens economic challenges.

Measures Required for Sustainable Agricultural Growth

a) Rationalisation of Subsidies

• The government should gradually reduce inefficient subsidies while protecting vulnerable farmers.
• Better targeting of subsidies can reduce unnecessary fiscal expenditure.

b) Promotion of Direct Benefit Transfers

• Direct income support through DBT can improve transparency and reduce leakages.
• Cash transfers can provide flexibility to farmers while reducing market distortions.

c) Encouraging Crop Diversification

• Farmers should be encouraged to shift towards pulses, oilseeds and millets.
• This will improve nutritional security and reduce pressure on water resources.

d) Investment in Agricultural Infrastructure

• Greater investment is needed in irrigation, storage, food processing and rural logistics.
• Strong infrastructure can improve farmer incomes and reduce post-harvest losses.

e) Promotion of Sustainable Farming

• The government should encourage balanced fertiliser use, organic farming and micro-irrigation.
• Sustainable practices can improve soil health and environmental conservation.

f) Agricultural Market Reforms

• Strengthening e-NAM, Farmer Producer Organisations (FPOs) and private investment can improve market access for farmers.
• Efficient markets can increase farmer incomes without excessive dependence on subsidies.

Conclusion: Agricultural subsidies remain necessary for supporting vulnerable farmers and ensuring food security in India. However, excessive and politically driven subsidies are fiscally unsustainable and environmentally harmful in the long run. India must shift from a subsidy-driven agricultural system towards a productivity-oriented, sustainable and reform-based agricultural model. Balanced reforms, targeted support and long-term investment in agriculture are essential for ensuring both farmer welfare and economic stability.

Question: India’s growing agricultural subsidies reflect both political compulsions and structural weaknesses in the farm economy. Discuss the economic, fiscal and political implications of the agricultural subsidy regime in India. Suggest reforms for sustainable agricultural growth.

Source: Indian Express