Indian Agriculture is often considered to be a subsidised one to lend a helping hand to the farmers of India. This presentation will brief the viewers about the reality of the agriculture subsidies in India.

1. SUBSIDIES IN INDIAN
AGRICULTURE & ITS IMPACT
Presented by-
Soumyadeep Sarkar,
MBA(AB)
IABM, Bikaner
1

2. What is Agriculture Subsidy?
 Subsidies are among the most powerful instruments for manipulation and
balancing the growth rate of production and trade in various sector and region
and for an equitable distribution of income for the protection of the weaker
section of the society.
 In India from last several years the government provides subsidies to
agriculture sector in direct & indirect forms
 But,
 Are they really beneficial to agriculture?
 Are they really harmful to the economy?
 What really happenes to the agriculture subsidies?
2

3. Types of Agriculture Subsidies in India
A. Input Subsidy
i. Fertilizer Subsidy
ii. Power Subsidy
iii. Irrigation Subsidy
iv. Seed Subsidy
v. Agricultural Equipment Subsidy
B. Credit Subsidy
C. Price Subsidy
D. Export Subsidy
E. Agriculture Infrastructure Subsidy
3

4. A.i.Fertiliser Subisdy
 Disbursement of cheap chemical or non chemical ferilisers among the farmers. It
amounts to difference between price paid to manufacturers of fertilizer and price,
received from farmers, rest of the burden is bear by the government.
 This subsidy ensures-
 Cheap input to farmers
 Reasonable return to manufacturers
 Stability in fertilizer prices
 Availability of fertilizers to farmers in
adequate quantity at the requirements
4

5. A.ii. Power Subsidy &
A.iii.Irrigation Subsidy
 Power Subsidy : This implies that the government charges
low rates for the electricity supplied to the farmers. Power
is mainly used for the irrigation objectives.
 It is the difference between the Cost of generating and
distributing electricity to farmers to the Price received from
farmers.
 Irrigation Subsidy : Under this umbrella Government
provides irrigation facilities at cheaper rates as compare to
the market rates.
 It is the difference between operating and maintenance cost of
irrigation infrastructure in the state and irrigation charges
recovered from the farmers.
 It may work through extending public services or through
cheap private irrigation equipment.
5

6. A.iv. Seed Subsidy &
A.v. Equipment Subsidy
 Seed Subsidy: HYV Seeds can be provided by the Govt. at low
prices and at the future payment options. The research and
development activities needed to produce such productive seeds are
also undertaken by the government, the expenditure on these is a
sort of subsidy granted to the farmers
 Equipment Subsidy: Support provided in monetary terms for
purchasing new agricultural equipments and implementation of new
technology from the lab to the land
6
Department of Agriculture, Cooperation & Farmers Welfare rolling out the
subsidies through State Govt under schemes like Sub-Mission on Agriculture
Mechanization for listed 11 types of Agri-machineries like Power Tiller, etc.

7. B. Credit Subsidy
 It is the difference between interest charge from farmers and actual cost of
providing credit, plus other cost such as write offs bad loans. Availability
of credit is a major problem to poor farmers. They do not have the
sufficient cash to carry out the agricultural operations and often falls prey
to traditional moneylenders. Even to due to the absence of collateral they
do not have loans from financial institutions. To tackle these problems-
 More banking operations in rural areas- which will advance agricultural
loans.
 Interest rate can be maintained low through subsidized schemes.
 The term of credit can be relaxed for poor.
7
Normally farm loan attracts an interest rate of 9%. But Govt. is providing 2%
subsidy for short term loan upto Rs. 3 lakh. More, 3 % for quick repayment.

8. C. Price Subsidy
 It is the difference of the price of agricultural produce at which FCI procures them and the
price at which PCI sells them to the traders or PDS. In cases when farmers are going to
meet a loss due to the low market price, Government can intervene and purchase at a rate
higher than the market price, the rate at which they are buying it from the farmers are
known as Procurement price. *MSP for 22 crops (14 Kharif, 6 Rabi, 2 Commercial)
*Fair & Remunerative Price (FRP) for Sugarcane
MSP (Rs.) 2017-18 2018-19 2019-20
Rice Common 1550 1750 1815
Grade-A 1590 1770 1835
Wheat 1625 1735 1840
Maize 1425 1700 1725
8

9. D. Export Subsidy
 Export Subsidy: This subsidy is given to the farmers to face the steep
international competition. When a farmer or exporter sells an agricultural
produce to the international market, he earns money for himself and for
foreign exchange of the country. Therefore it is encouraged until it hampers
the domestic economy.
9
In India, the volume of subsidized export and budgetary outlays
for such subsidies is virtually non-existent. In India,
I. Remission of Duties or Taxes on Export Products (RoDTEP).
II. Reduction in Corporate Income Tax rate.

10. E. Agriculture Infrastructure Subsidy
 Private efforts do not prove to
sufficient for agriculture growth
boost in many areas. Better
transportation, Better storage,
Better Information flow are vital
for the development which
comes under the public domain.
Thus government often takes
effort to develop infrastucture
for the farmers.
10

11. What Next?
11
 Questions, to find-
 Are Subsidies the best way to achieve intended
objectives of growth, employment and investment?
 If yes, then for how long should the objectives be
continued?
 What is the overall long term cost of these
subsidies to the economy & environment?
 Are subsidies providing regional equity and
allocative efficiency at the national level?

12. Impact of Subsidy in Agriculture
 Subsidy systems have outlived their aims and is becoming ‘unsustainable’
 Reason-
 Rising burdens of revenue deficit has created a fiscal imbalance in centre and state
budgets.
 If the Indian Agriculture is net subsidised or taxed i.e. Aggregate Measure of
Support (AMS) is positive or negative.
 Equity Impact
 Plausible impact of subsidies on efficiency in resource use..
 Environmental degradation in general.
 Changes in Cropping Pattern
 Challenges for new industry/technologies
12

13. Aggregate Measure of Support
 WTO’s AoA(Agreement on Agriculture) classifies domestic support or subsidies given
by the government to farmers through different methods. An important method is this
AMS. This trade distorting domestic support is known as ‘Amber Box’. It is
‘reducible’, ‘non-permissible’ & ‘non-exempted’.
 It compares upon administered price to FERP of 1986-88
 Type-
 Product Specific (towards producers of basic agricultural commodities) refers to the total
level of support for each individual agricultural commodity. e.g. Wheat AMS is specifically
towards Wheat, measured by taking differences between price given to the producers during
procurement by the government and a specific fixed external reference price. Multiplying
this gap by the quantity of production eligible for receiving the price.
 Non product specific (towards general agricultural producers) refers to the total level of
support given to the agricultural sector. E.g. Fertilizer Subsidy.
13

14. What AMS of India suggesting?
14
 FERP for Wheat is
$ 130/ tonnes,
while MSP for
Wheat is $ 225/
tonnes, for the
session 2019-20.
The price gap still
has been negative
under different
situation.

15. 15
What AMS of India suggesting?
Now, lets see the
AMS of Wheat

16. Reality with Subsidies
16
 Subsidies cut into the productive investment for the growth of agrciulture; like
investing in short-term goal sacrificing the long-term one.
 Though installed to meet certain short term objectives and once met can be withdrawn,
but history has been the witness that it has been increasingly difficult to withdraw the
same once installed due to political aspects of it. ‘Dole politics’ has often brought in
more subsidies to attract the farmers but there has been hardly any step towards
capacity building of the of the farmers which could actually develop the backbone of
the farmers. A quasi-universal basic income scheme for the poor can be a better
alternative, and can avoid the WTO’s legalities as it will be in the ‘Green Box’
 Innovations like Fertilisers Direct-Benefit-Transfer has helped India save $1.54bn.
 Change in calculation of subsidy from the AMS to PMS, which could actually develop
a more real-time study of the subsidy extended.

17. THANK YOU
17