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Should the government subsidize farmers?

Agriculture accounts for 17.5% of India’s GDP and about half of the total employment (2015-16). Two-thirds of India’s population depends on agriculture and related activities for livelihoods.

Indian government plays a vital role in agriculture sector development. The government role is diverse and varied. Some of the cited reasons for the vital role are self-sufficiency, employment creation, support to small-scale producers for adopting modern technologies and inputs, reduction of price instability and improvement of the income of farm households.

This vital role can take a number of forms such as import-export policies and domestic policies like price support programs, direct payments, and input subsidies to influence the cost and availability of farm inputs like credit, fertilizers, seeds, irrigation, water, etc.

Being an agricultural based country, India from the time of independence is trying to improve its agricultural sector by giving subsidies and another form of measures to improve it.

Subsidy India is given in two ways: a) fertilizer subsidy is given by the central government and earlier it used to give the diesel subsidy also but now it stops giving and b) irrigation, electricity, seed etc subsidies are given by the state government.

Objectives of the subsidies are redistribution effect, intersectoral balance, well-targeted, trade effects etc. In India Agricultural subsidy is of various kinds. They are explaining as follows :

( 1) INPUT SUBSIDY: ‘Subsidies can be granted through the distribution of inputs at prices that are less than the standard market price for these inputs. The magnitude of subsidies will, therefore, be equal to the difference between the two prices for per unit of input distributed.’ Various types of subsidies can be named in this category. They are :

(a)Fertilizer Subsidy:” Distribution of cheap chemical or non-chemical fertilizers among the farmers. It amounts to the difference between the price paid to the manufacturer of fertilizer (domestic or foreign) and price, received from farmers.”

(b) Irrigation Subsidy: “Subsidies to the farmers which the government bears on account of providing proper irrigation facilities. Irrigation subsidy is the difference between operating and maintenance cost of irrigation infrastructure in the state and irrigation charges recovered from farmers. This may work through provisions of public goods such as canals, dams which the government constructs and charges low prices or no prices at all for their use from the farmers. It may also be through cheap private irrigation equipment such as pump sets.”

(c) Power Subsidy: “The electricity subsidies imply that the government charges low rates for the electricity supplied to the farmers. Power is primarily used by the farmers for irrigation purposes. It is the difference between the cost of generating and distributing electricity to farmers and price received from farmers. The State electricity boards (SEBs) either generate the power themselves or purchase it from other producers such as NTPC and other SEBs. Power subsidy “acts as an incentive to farmers to invest in pump sets, bore-wells, etc.”

(d) Seed Subsidies: High yielding seeds can be provided by the government at low prices. 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.

(e) Credit Subsidy: “ It is the difference between interest charged from farmers, and the actual cost of providing credit, plus other costs such as write-offs bad loans. Availability of credit is a major problem for poor farmers. They are cash-strapped and cannot approach the credit market because they do not have the collateral needed for loans. To carry out production activities they approach the local money lenders.

Taking advantage of the helplessness of the poor farmers the lenders charge exorbitantly high rates of interest. Many times even the farmers who have some collateral cannot avail loans because banking institutions are largely urban-based and many times they do not indulge in agricultural credit operations, which is considered to be risky.”

The government can provide following measures to tackle these problems :

(1)more banking operations in rural areas which will advance agricultural loans, and

(2) low-interest rates can be maintained by various subsidization schemes, and

(3) terms of credit can be relaxed for the poor.

(2) Price Subsidy: “Itis the difference between the price of food-grains at which Food Corporation of India procures food-grains from farmers, and the price at which PCI sells either to traders or to the Public Distribution System. The market price may be so low that the farmers will have to bear losses instead of making profits. In such a case the government may promise to buy the crop from the farmers at a price which is higher than the market price. The difference between the two prices is the per unit subsidy granted to the farmers by the government. The price at which the government buys crops from the farmers is called the procurement price. Such procurement by the government also has a long run impact. It encourages the farmers to grow crops which are regularly procured.”

(3)Infrastructural Subsidy: “Private efforts in many areas do not prove to be sufficient to improve agricultural production. Goodreads, storage facilities, power, information about the market, transportation to the ports, etc. are vital for carrying out production and sale operations. These facilities are in the domain of public goods, the costs of which are huge and whose benefits accrue to all the cultivators in an area.

No individual farmer will come forward to provide these facilities because of their bulkiness and inherent problems related to revenue collections (no one can be excluded from its benefit on the ground of non-payment). Therefore the government takes the responsibility of providing these and given the condition of Indian farmers a lower price can be charged to the poorer farmers.”

(4)Export Subsidies: This type of subsidy is not different from others. But its purpose is different. When a farmer or exporter sells agricultural products in the foreign market, he earns money for himself, as well as foreign exchange for the country. Therefore, agricultural exports are generally encouraged as long as these do not harm the domestic economy. Subsidies provided to encourage exports are referred as export subsidies.”

Some of the subsidy policies are :

1.NutrientBased Subsidy, 2010 policy on Seed Development (NPSD) includes hybrid seeds, genetically modified varieties, national seed corporation.

3.Irrigation policies

4.Power and Electricity policies

1.NutrientBased Subsidy, 2010: “This was introduced in 2010with objective to promote balanced use of fertilizers and to limit fertilizer subsidy of the government. Idea was to fix subsidy as per nutrients (in per Kg) in the fertilizer and leave the determination of the price to suppliers. PresentlyUrea is not covered under the scheme due to political compulsions. Consequentlysubsidized price of Urea remained stagnant even when real costs of production have risen significantly. On the other hand, Potassium and Phosphorous are covered under the scheme and a fixed subsidy as per content of nutrients is given to suppliers and they change Maximum Retail Price as per market signals. Secondary and Micronutrients are also covered under the scheme.”

“Asa result, actual use of NPK is in the ratio of around 8:3:1 while recommended use is 4:2:1This additional use of urea doesn’t give any additional benefit to the farmer. Instead, this can degrade soil and harm crop. Productivity and quality of a crop depend upon the use of a diversified mix of macro and micronutrients, which vary from soil to soil. The latest Economic survey notes that while urea consumption has increased from 59per cent to 66 percent of total consumption in 2012-13 over 2010-11, per hectare consumption of fertilizer has declined from 140 kg to 128 kg over the same period. Fertilizer subsidy was `67,971 crore in 2013-14, an increase of 11 percent over 2009-10. A large part of this went to production and consumption of urea that was not needed at all. Also, due to excessive use of fertilizers groundwater is also getting polluted and chemical-bio accumulation problem is impacting the health of people. In Punjab and Haryana, the problem is rampant and groundwater is found to be polluted with arsenic, uranium, fluoride etc. Plants or crops need about 17 essential elements to survive and grow. If any of these elements are deficient, then growth will be stalled or plant will die. Among these elements, N, P, Calcium, Magnesium, and Sulfur are required in comparatively large quantities and termed as macronutrients. Other elements such as Boron, Chlorine, Copper, Iron, Manganese, Molybdenum, Zinc and nickel are needed in smaller quantities hence termed as micronutrients. Macronutrient based fertilizers are dominant and its use enhances the capability of plants to extract more micronutrients from the soil.” policy on Seed Development (NPSD): “Subsidies on inputs have their roots in Green revolution. That time extensive subsidies were given on Hybrid seeds, Fertilizers, pesticides etc. main aim of subsidies are two – one is to keep the cost of the food grains at a minimum and avoiding food inflation, second is to ensure income security of the farmer. While this policy has helped a lot to secure food sufficiency, yet it has many unintended negative impacts. It results in overuse of inputs as inputs costs don’t represent adequate market costs, farmers are unable to respond to market signals. They continue to use a skewed mix of inputs as costs are borne by the government.”

Seeds: “Many schemes such as Rashtriya Krishi VikasYojna, Macro Management Agriculture, Integrated Scheme for oilseeds, pulses, oil palm and maize (ISOPOM); Technology missions for cotton, National food security Mission etc. provide for subsidized seeds. Some of them also provide incentives for investment in Seed manufacturing infrastructure and up gradations.” ‘ New Policy on SeedDevelopment (NPSD) includes permitting 100 percent foreign direct investment (FDI) under the automatic route. The thrust is also on creating a seed bank.

There are three stages in seed production cycle. At first stage, Breeder seeds are developed by ‘Indian Council of AgriculturalResearch’ (ICAR), National Seeds Corporation or state farms corporations. In second stage Foundation Seeds are developed by NSC, SFCs or State seeds corporations and then finally Certified Seeds are produced and distributed to all farmers. Certification is done by state agricultural universities or private organizations authorized by ‘Indian Council ofAgricultural Research’’

Hybrid Seeds: “Hybrid seeds are obtained by the cross-pollination of different varieties of related plants. These seeds were instrumental in the green revolution. These seeds combine desirable properties of two related plants. Using a method of controlled crossing devised by Charles Darwin and Gregor Mendel in the mid-19th century, plant breeders can now produce seed that combines the desired traits of two pure parent lines in the first generation itself. One drawback was that these seeds don’t regenerate seeds of the same quality. So everytime farmers have to buy new seeds. In case of conventional seeds, farmers could use reproduced seeds by current crop. In that sense, hybrid seeds pushed up Input costs for the farmers and multinational companies like Cargill Inc.established their monopoly over the market. Now there is growing clamor both for and against a genetically modified variety of seeds. Its supporters believe that it can get world rid of starvation, whereas opponents fear negative effects on the environment,biodiversity, and health.”

genetically modified Varieties: “These varieties of seeds are developed in laboratories by genetic engineering technologies. In these technologies genes of different species of organisms (like bacteria genes with plants) are integrated to modify DNA to get the desired characteristic. Bacterianamed bacillus thuringiens is given a gene that is incorporated into plant’s DNA and we get Genetically Modified Organisms like BT- corn, BT- cotton, Bt-Brinjal etc. This plant will be protected from pests and will give increased yields. In the USA GM crops are allowed and contribute about 85% of the consumption, whereas in Europe it is largely banned as of now. In India, it is allowed for the commercial production of cotton and for food crops field trials are going on.

In 2013 Supreme Court in response to a PIL appointed a Technical expert committee for considering whether trials should be allowed or not. EC recommended that there should be a moratorium on trials until proper regulatory and safety mechanisms are put in place, and BT crops are approved for their long-term safety. Notwithstanding this government allowed trials for some crops, as didn’t pass any order in this relation. The main concern of the farmer community is that Companies like Monsanto will exploit their monopolies as seeds are expensive and are not regenerative. Recently GMO cotton seeds supplied byMahyco, (a GM seed company which has a joint venture with Monsanto), resulted in ina crop failure which brought suffering to farmers.”

National SeedsCorporation: It is aMiniratna Company under Ministry of agriculture formed in 1963 to produce foundation seeds and undertake certification activities. It has a central role in the development of seed industry in India. Various schemes such as ISOPOM, NFSM, and National Horticulture Mission are implemented (partly or fully) under NSC. It is also involved in export of seeds, especially to SAARC nations and African countries. A SAARC seed bank is being maintained in which large quantities of various seeds are kept as inventory so that shortage due to any natural calamity or otherwise can be tackled.

3.Power and water for agriculture: “Farmers get highly subsidized or free electricity for agricultural purposes. Electricity is mainly consumed in pumping out underground water. As 70 % of the of countries, agricultural land is Rain fed, electricity becomes main input in agricultural produce. However subsidized and ample electricity has resulted in the indiscriminate use of electricity by the farmers, which results in massive wastage of electricity and water. In fact, this is the main reason behind depleting ground water. It also provides avenues for pilferage and theft of electricity.”

Separation of feeders: “ Feeder is an electrical cable or group of electrical conductors that run power from a ‘larger central source’ to one or more secondary or branch-circuit distribution centers(to end user).We have yet common feeder lines for agricultural and other sectors in all states except Gujrat.”

“In Gujrat Jyotigram Yojna was initiated in 2006, which separated agricultural feeders from the main feeder. The agricultural feeder supply was regulated and power is given only for 8-10 hours per day. Timings of powers are pre-declared to the farmers. On the main feeder, power is supplied full time. This development has two-fold benefits; one is surplus electricity for industry and civilians and second is it arrested rapid depletion of groundwater. The result is Gujrat has the surplus power of 2000 MW which is sold to other states.

The success of this scheme was recognized by the planning commission and it was made central to power reforms under the 12th five-year plan.”New scheme Pandit Deendayal Upadhyaya Gram Jyoti Yojana,aims for separation of feeders at the national level. Rajasthan and Andhra Pradesh are the first states to be rolled out. The scheme will is merged with ‘Integrated Power Development Scheme’, whose aim is to improving India’s sub-transmission and distribution network.

Irrigation: “although India is the second largest irrigated country in the world after China, only one-third of the cropped area is under irrigation. Irrigation is the most important agricultural input in a tropical monsoon country like India where rainfall is uncertain, unreliable and erratic. India cannot achieve sustained progress in agriculture unless and until more than half of the cropped area is brought under assured irrigation. This is testified by the success story of agricultural progress in Punjab, Haryana and western part of Uttar Pradesh where over half of the cropped area is under irrigation. Large tracts still await irrigation to boost the agricultural output. However, care must be taken to safeguard against ill effects of over-irrigation especially in areas irrigated by canals. Large tracts in Punjab and Haryana have been rendered useless (areas affected by salinity, alkalinity, and water-logging), due to faulty irrigation. In the Indira Gandhi Canal command area also intensive irrigation has led to sharp rise in sub-soil water level, leading to water-logging, soil salinity, and alkalinity.”

4.Inter-Basin Water Transfers: “One of the most effective ways to increase the irrigation potential for increasing the food grain production, mitigate floods and droughts and reduce the regional imbalance in the availability of water is theInter Basin Water Transfer (IBWT) from the surplus rivers to deficit areas. Brahmaputra and Ganga particularly their northern tributaries, Mahanadi, Godavari and West Flowing Rivers originating from theWestern Ghats are found to be surplus in water resources. If India can build storage reservoirs on these rivers and connect them to other parts of the country, regional imbalances could be reduced significantly and a lot of benefits by way of additional irrigation, domestic and industrial water supply, hydropower generation, navigational facilities etc. would accrue. For this purpose Ganga- Cauvery link canal was proposed in 1970’s, but as we know DeccanPlatue and other higher areas lie in between Ganga and Cauvery, water has to be lifted with use of pumps. Electricity required in this pumping is as high as 6000-7000MW which makes this project unviable. Also, there are many other apprehensions regarding the ecology of rivers and impact on downstream and upstream regions.”

Another proposal (also in the 70’s) suggested construction of two canals – the first 4200 km. Himalayan Canal at the foot of Himalayan slopes running from the Ravi in the West to the Brahmaputra and beyond in the east; and the second 9300 km Garland Canal covering the central and southern parts, with both the canals integrated with numerous lakes and interconnected with pipelines at two points, Delhi and Patna. The proposal was examined by two committees of experts comprising SeniorEngineers from Central Water Commission, State Governments, Professors from theIIT s and Scientists from Geological Survey of India and Indian meteorological department who opined that the proposal was technically infeasible. The cost estimated by the experts in 1979 was about Rs.12 million crores. The realistic cost at 2002 price level comes to about Rs. 70million crores. Notwithstanding this, there are some success stories at regional basis under which water is transferred from one basin to another. For eg. –

a) Indira Gandhi canal – Transfer of water from Indus basin to deserts of Rajasthan b) Periyar project – Transfer of water from Periyar basin toVaigai basin c) KurnoolCudappah Canal – Transfer of water from Krishna basin to Pennar basin.

Inthe last two decades, agriculture-related growth has been much slower than growth in non-agricultural sectors, contributing to widening income inequality between rural and urban areas. This stems mainly from modest growth in total factor productivity. Population pressure, inheritance laws and a lack of employment opportunities in rural areas have contributed to both an increase in the number of farmers as well as a decrease in average farm size. So, the subsidy is necessary for the upliftment of the agricultural sector as well as the people involving with the agricultural activities for the country like India where more than 50% of populations livelihood is agriculture related. In the 21stcentury also India is not that much advance in agriculture like in other countries. Though India has many policies regarding subsidy it has not get the proper outcome from it because of the lack of proper implementations of those policies. Moreover, the problems like corruption are one of the major problems.

India can very well contribute to its GDP through agriculture if it follows some proper policies. So India should improve some of its policies and also should introduce some of the new policies for the better functioning of the country. Some of the recommendations regarding subsidy to farmers are :

1. Invest in agriculture innovation systems, including technology transfer and farm extension services, and in strategic rural infrastructure, including water use, in order to boost agricultural productivity and resource sustainability.

2. Begin to shifts public expenditures away from price support and input subsidies and toward investments that support the productivity and long-term competitiveness of the agriculture sector and, over time, contribute to making staple food more affordable.

3. Invest in education, technical know-how, health, sanitation, and other public services that would contribute not only to improved food and nutrition security but also to improve the farming and production.

4. The government should establish a particular organization to look after the proper implementation of the subsidy policies.

5. Subsidy policies should not be equal for all the parts of the country. Subsidy Policies should be made and distributed according to the geography, soil, physibility, availability etc.

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