Evaluation of Farm Subsidies

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?

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 -

building a national-level warehousing grid with smaller warehouses near the farm-gate
setting up of agri-processing centres
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.