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Agricultural Subsidy: What went wrong where?

Agricultural subsidies are given by government to farming community directly or indirectly

in the form of cash, tax reduction or price support.
Objectives of Ag. Subsidy: For equitable utilisation of resources among the people and to
support the small and marginal farmers in their effort to do the farming as sustainable
2 types
1. Investment subsidies: necessary for improving the productivity of the farm holding and
increase the overall agricultural production of the nation. It encourages the farmers to
develop infrastructure facilities like installation of drip irrigation system, construction of
water storage tank and acquiring farm implements.
2. Input subsidies: Subsidies on farm inputs like like fertilizer, pesticides, irrigation water,
electricity etc.
View of policy makers: Input subsidies have not served the intended purpose as it is felt that
it is geographically concentrated and restricted to few crops and produces. So do not reach
the target group. There is also the issue of siphoning away of input subsidies along the path.
Problem with the subsidy: Input subsidies take the lions share from 88% in the 1990 to 94%
today. It is at the cost of investment subsidy.
Significant increase of fertilizer subsidy:
Fertilizer subsidy now: almost 76000 crore (1.52% of GDP) but this is more concentrated in
UP, Andhra Pradesh, Mahararashtra, MP, Punjab. So interstate disparity high in fertilizer
subsidy. Rice is the most heavily subsidised crop followed by wheat, sugarcane, cotton.
These account for 2/3
of total fertilizer subsidy. The small and marginal farmers have a
larger share in fertilizer subsidy in comparison to their share in cultivated area. A reduction
in fertilizer subsidy is, therefore, likely to have adverse impact on farm production and
income of small and marginal farmers as they do not benefit much from higher output
prices but do not benefit from lower input prices.
Subsidy must be a part of a comprehensive plan towards the essential goal of helping the
small and marginal farmers to meet the additional cost of cultivation. But it is an established
fact that more affluent farmers are able to garner a disproportionately large part of the
subsidies. So the subsidy incidence is inequitable. .
There is an urgent need to increase subsidies to investment categories to lift Indian
agriculture form the stagnation. Subsidies provided in India is suffering both from inclusion
error (well developed famers are benefiting) as well as exclusion error (deserving people left
out of subsidies).
3Ts are missing in in most of the subsidies: Transparent, Targeted and Temporary.

The way out:
1. Subsidy could be delivered through Debit input cards to buy input. It includes all kind of
input like power, seed, fertilizer. Farmer will become proficient manager as they exercise
their choices judiciously to optimise inputs.
2. One fits all is not going to work. There is a need of smart subsidies. It should
differentiated rainfed and perennially irrigated farms.
3. Amount of subsidy should be inversely proportional to the increase in size of land
holdings. This will ensure small and marginal farmer is served better. (>80% of Indian
farmers are small and marginal).
4. Subsidies cannot be a short term and quick fix. Medium to long term subsidies on input as
well as investment categories are essential to build of agricultural development.
Reference: Survey of Indian Agriculture 2012, the Hindu