ANS

An agricultural subsidy is government’s incentive paid to farmers to ensure sustainable development of agriculture as well as prosperity of the farmers.

Agriculture subsidy serves following purposes:

1. Agricultural subsidies can enable sustainable farming, crop diversification etc.

E.g., comprehensively integrating millets in the MGP regime.

2. As majority of farmers are small and marginal, a well-targeted subsidy regime can bridge structural deficits.

E.g., use of Happy seeder machine to tackle stubble burning.

3. In a welfare state, subsidies are vital to mitigate the impacts of cyclical shock.

E.g., headline inflation due to climatic vagaries.

4. State’s support and hand holding can flatten the regional imbalance curve.

E.g., Odisha’s Kalia Yojna.

 Though beneficial, agriculture subsidies also have various negative consequences:

1. Economic inefficiency:
2. a) Untargeted subsidies lead to revenue deficits both at state and the centre.
3. b) Unabated farm subsidies have disincentivised resource efficiency.

E.g., power subsidy has made India one of the least water efficient countries.

1. c) Farm subsidies are prone to leakages and is marred with corruption.
2. d) High agricultural subsidy has led to inadequate investments in other aspects like research, organization of FPOs etc.
3. Ecological imbalance:
4. a) Existing subsidy regime has benefitted a few crops at the cost of many, distorting the cropping pattern, even against agroclimatic conditions.

E.g., Sugarcane in Rajasthan, Maharashtra etc.

1. b) Neglect of indigenous crops/seeds in the subsidy regime have affected the biological diversity.
2. c) Fertilizer subsidies have led to over usage of natural resources.

E.g., soil health degradation.

1. d) Focus on water intensive crops like rice has led to drying of aquafers.

E.g., ground water depletion in Punjab and Haryana.

1. e) High power subsidy has led to groundwater depletion and also enhanced the carbon footprint of Indian agriculture.
2. Other impacts:
3. a) Challenges at WTO as subsidy are blamed for market distortion.
4. b) Agricultural subsidies promoting the rice-wheat cycle have resulted in nutrition deficiency in the citizens.

The measures to rationalise the impact of subsidy are:

1. Agricultural infrastructure and agriculture research.

E.g., as per a study, every 10-lakh spent on agriculture research brings 382 people of poverty; same amount spent on subsidies help only 26 people.

2. MSP reforms as per agro-climatic realities.

E.g., Procurement of millets like jowar, bajra and ragi under MSP.

3. End to end digitalisation of the process of subsidy allocation can help prevent leakages and corruption, reducing the farm subsidy bill.
4. Decentralized procurement of local crops.

E.g., procurement of red rice in Uttarakhand; Jowar in Rajasthan etc.

5. Targeting/rationalising farm subsidies is necessary to benefit the small farmers and promote resource efficiency.

E.g., evidence-based delivery of farm subsidy, farm credit; sunset clause on subsidies; periodic appraisal etc.

6. Populist measures, such as loan waivers, associated with vote bank politics should be revaluated.

There is a need to enhance capital investment and rationalise the subsidy regime in the country. In this light the recommendations of Kelkar committee can be adopted