India’s policy of price intervention in the agricultural sector has done more harm than benefit. It has created a skewed agricultural market and complicated matters related to international trade rules. Critically discuss.

The agricultural sector provides employment to nearly 45% population and is crucial to India’s food security.

Thus, numerous price interventions exist to support the sector:

  • Direct Benefit Transfer to farmers, e.g. PM-Kisan.
  • Guaranteed crop procurement at pre-decided prices, e.g. MSP, PM-Aasha.
  • Material support, e.g. Subsidised electricity, water supply, fertilizers, seeds, etc.

Impact of price interventions:

  • It creates a broken system – MSP procurement, etc hinders free development of markets.
  • Distortionary effects of MSP – Increased area under rice-wheat cultivation, reduced cultivation of pulses, millets, etc.
  • Environmental – water-gulping nature of MSP crops like rice is reducing groundwater table, especially in states of Punjab and Haryana. Increased pesticides and fertilizers use, creates pollution in water bodies by runoff water.
  • Hinders private investment due to APMC monopolies, etc.
  • Complicate International trade rules matters – WTO’s agreement on Agriculture demands to restrict distortionary Amber box subsidies to 10% of production levels.

Way forward:

  • Inclusive nature of subsidies – Across crops (PM-Aasha), across regions (majority rice procurement at MSP from Punjab Haryana only).

Shift away from price-support to direct transfers as under (PM-Kisan).


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