Explain the difference between direct and indirect farm subsidies and also mention their merits and demerits.
The farm subsidies cost approximately 2.5-3.0% of our GDP and account for over 1/5th of total farm income.
Direct and indirect subsidies:
- Direct farm subsidies include support/ subsidy transferred directly into farmer’s hands.
- Whereas, indirect farm subsidies are inherent in the pricing of inputs such as subsidized seeds, power subsidy, etc.
- Crucial to secure farmer income:
- Farm size in India – less than 2.6 acre per capita.
- Farmer income less than 7000 (average).
- Smart Agriculture:
- Require judicious use of resources and adequate mechanisation.
- Need for scale neutral technology – e.g. Happy seeder, custom hiring center.
- Promote food security:
- Subsidy is also means to influence cropping pattern, choice of crop.
- g. In 1960s, MSP for wheat and rice.
- Environment sustainability:
- Nutrient benefit scheme – promote non-urea nutrient based fertilizer.
- Ecological threats:
- g. Heavy use of urea (under highly controlled & subsidized framework).
- Distortion in market functioning:
- g. Subsidy in power in states like Punjab & Haryana – heavy dependence on groundwater extraction for crops like wheat and paddy.
- Huge cost to exchequer and high opportunity cost.
- Less incentive for optimal use of resources like community points, zero budget natural farming.
Recent initiatives like PM-KUSUM and KISAN-SAMMAN aimed towards direct benefit transfer in ecological & economically sustainable processes are the key to checking short-sighted distorted subsidiary mechanism.