Key Issues arising out of farm subsidies

The major issues arising out of the farm subsidies are as follows:

Misuse of subsidies

The subsidies that are provided by the government seldom reach the small farmers.  They are mostly snatched by the large farmers or the manufacturers. Due to lack of proper distinction and demarcation of a fertilizer company, a lot many companies producing fertilizers deliberately portray a higher price in order to get maximum benefit of the subsidies. In this regard, the states of Punjab, Haryana, western UP and coastal states witnessed maximum leakage of subsidies. On the other hand, the north-eastern states could hardly utilize the subsidies.

In order to curb this menace, the Central Government proposed to transfer the fertilizer subsidy directly into the bank accounts of the deserving farmers. But this pose the challenge for the government of identifying the deserving beneficiary farmers as the land records of the states were neither depicting appropriate values nor were they updated till date.

Distortion of trade

Input subsidies distort trade by increasing net exports of input intensive commodities while decreasing net exports of commodities which require relatively few inputs. Many countries like Australia, US and UK have challenged the subsidies on wheat, sugarcane etc. which they claim are distorting trade. But developing countries like India and China have counter-claimed that about 90% of farm subsidies that are distorting trade originate from developed countries in the form of Aggregate Measurement of Support.

Increased financial burden

The expenditure on subsidies has doubled in the last decade leading to widening fiscal deficit of the country. It is driven primarily by subsidies in fertilizer and electricity. Most of the expenditure made on subsidies goes into the wrong hands and thus perpetuates their requirement as the position of farmers does not improve. The government had been adopting a policy of moral persuasion by which the people are being asked to give up subsidies. But better measures can be taken by reducing losses of the Food Corporation of India through both price and non-price adjustments. The MSP regime also needs to be reviewed to ensure production incentives.

Uneven distribution

Unevenness is rife across regions, crops and differing farm sizes. For example-it is alleged that subsidies have benefitted more to the north Indian states as compared to south and north eastern states. Moreover, a recent survey by NABARD and undertaken by Punjab Agriculture University has confirmed that 94% of the Government subsidies are being used by big and medium farmers, leaving the smaller farmers for whom subsidies are actually meant. Big farmers are able to siphon off or get greater benefits largely because of political connections.

Flawed policies

Hostile policies have compounded the problems as no major fertilizer plants have come up in the last many years. A huge fraction of urea requirements is still met with imports. On the other hand, the sale of urea in black markets has doubled, causing a huge loss of the government exchequer. There is also a problem with the Nutrient Based Fertilizer Policy that has caused unintended effects.  Over use of fertilizers has resulted in nutrient imbalance causing pest infestations and lowering yields, among other problems. In other areas over utilization has led to soil degradation, environmental harm etc, thereby, decreasing the effectiveness of inputs. In Punjab and Haryana the lowering of water table resulted owing to overutilization of ground water due to subsidized electricity.

In order to control the unintended effects on environment the government has released Rs 200 crore for the soil health card scheme. It has however not looked into the possible option of changing the pattern of fertilizer use.

It must be noted that since farm subsidies, particularly fertilizer subsidy is the second largest subsidy after food subsidy, its negligence can have drastic impact on the economy. Both fiscal health and soil health are dependent on it. It is a need of the hour to ensure greater domestic production of fertilizers and also integrate all farm subsidy initiatives under a single policy framework for its effective regulation.