Minimum Support Prices (MSPs) are a crucial aspect of India’s agricultural landscape, serving as a safety net for farmers by guaranteeing a minimum price for their produce. These prices are set by the government to ensure that farmers receive remunerative returns for their efforts, thereby safeguarding their livelihoods and bolstering agricultural production. However, the implementation of MSPs often involves substantial subsidies, which have sparked debates regarding their efficacy and long-term implications for the Indian economy. While some argue that MSPs and subsidies are indispensable tools for supporting farmers and ensuring food security, others raise concerns about their economic sustainability and potential distortions in agricultural markets. The discourse surrounding MSPs and subsidies in India thus revolves around the complex interplay of social welfare, economic development, and agricultural sustainability.
Tags: GS– 3- Agriculture and related issues– Major Crops & Cropping Patterns– PDS — Buffer Stock & Food Security
Prelims: Agricultural subsidies; Policies and Programs by government;
Mains: Issue of Subsidies in India; Policies and Programs by Government;
Context:
- The World Trade Organization (WTO) has raised concerns regarding Agricultural Subsidies in India, particularly focusing on significant subsidies provided by the government. These subsidies encompass fertiliser, power, credit, output, seed, and export products.
What is the subsidy?
- A subsidy is a form of financial aid provided by the central government to public entities or private institutions, often in the form of discounts or monetary grants.
- The aim is to make certain products more affordable for public consumption.
- These subsidised products are deemed essential for the overall welfare of the community and serve as a means of supporting public well-being.
Historical Background:
- Post-Independence Era (1947 onwards): In the aftermath of independence, the government implemented various subsidies to foster industrialization, agriculture, and social welfare. These initiatives aimed to alleviate poverty and attain self-sufficiency in key sectors of the economy.
- Green Revolution (1960s): During the 1960s and 1970s, subsidies were extended to farmers for fertilisers, seeds, and credit. This was done to incentivize the adoption of modern agricultural practices and enhance food production, particularly through the Green Revolution.
- Liberalisation Reforms (1991): The onset of liberalisation in 1991 resulted in a reduction of certain subsidies and a transition towards market-oriented policies. However, the government persisted in providing support to sectors deemed vital for societal welfare and economic progress.
Types of Subsidies:
- Food Subsidy: Aimed at ensuring access to essential food items for a significant portion of the population below the poverty line in India. Through the Public Distribution System (PDS), items such as wheat, rice, sugar, milk, and cooking oil are distributed to eligible families, with variations based on regional needs.
- Education Subsidy: Provided by the Central government to eligible students to facilitate their pursuit of higher technical and professional education. This subsidy aims to make education more accessible and affordable for students from diverse socio-economic backgrounds.
- Export Subsidy: Offered by the government to incentivize and support companies engaged in export activities. These subsidies are designed to enhance the competitiveness of Indian products in international markets, thereby promoting exports and economic growth.
- Fertiliser Subsidy: Fertilisers are made available to farmers at a subsidised maximum retail price (MRP), which is lower than the actual cost. The government covers the price difference between the MRP and the actual cost, ensuring affordable access to fertilisers for agricultural purposes.
Subsidies in Agriculture:
- Direct Subsidies:
- Credit Subsidies:
- Farmers receive loans at lower interest rates or with relaxed repayment terms to finance agricultural activities, such as purchasing inputs, machinery, or land.
- For Example, the Government of India offers interest subvention of 2% and a Prompt Repayment Incentive of 3% to farmers, making credit available at a subsidised rate of 4% per annum through the Kisan Credit Card scheme.
- Direct Income Transfers:
- Governments provide cash transfers or income support schemes directly to farmers to supplement their incomes, improve financial stability, and alleviate rural poverty.
- For example, the PM Kisan Samman Nidhi Scheme provides support of Rs. 6000 per year to eligible farmers.
- Indirect Subsidies:
- Fertiliser Subsidies:
- Governments offer subsidies on fertilisers to reduce the cost burden on farmers and promote fertiliser use, thereby enhancing crop productivity.
- The Union Budget for the fiscal year 2024-25 allocated ₹1.64 trillion for fertiliser subsidy.
- Seed Subsidies:
- Subsidies on quality seeds enable farmers to access improved varieties that are disease-resistant, drought-tolerant, or have higher yields.
- The government provides a subsidy of Rs. 1000 per quintal or 50% of the cost for seeds.
- Water Subsidies:
- Subsidised irrigation infrastructure and water supply schemes aim to improve water availability for agricultural purposes, particularly in regions facing water scarcity. An example is the Pradhan Mantri Krishi Sinchai Yojana.
- Minimum Support Prices (MSP):
- Governments guarantee a minimum price for certain crops to protect farmers from market price fluctuations and ensure stable income.
- Procurement agencies purchase crops from farmers at MSP, often for staples like wheat, rice, and pulses.
- The government of India sets the MSP twice a year for 24 commodities, including 23 crops and sugarcane.
- Crop Insurance Subsidies:
- Subsidies are provided on crop insurance premiums to encourage farmers to enrol in crop insurance schemes, which protect against yield or revenue losses due to adverse weather, pests, or other risks. An example is the Pradhan Mantri Fasal Bima Yojana (PMFBY).
- Subsidised Agricultural Machinery:
- Governments may subsidise the purchase of farm machinery, equipment, and tools to mechanise agricultural operations, increase efficiency, and reduce labour costs. An example is the Sub-mission On Agriculture Mechanization (SMAM scheme).
Present issues raised by the WTO:
- Market Distortion: Agricultural subsidies, such as India’s Minimum Support Price (MSP), have the potential to disrupt global markets by undervaluing Indian agricultural goods on the international stage, thus distorting market dynamics.
- Trade Barriers: Subsidies create challenges for foreign producers without subsidies to compete effectively in markets where subsidised goods are sold, leading to trade barriers and unfair competition.
- Overproduction of Certain Crops: Subsidies can incentivize the overproduction of certain crops, exacerbating market distortions and leading to surplus production and potential wastage.
- Negative Environmental Impact: The overuse of fertilisers and water for irrigation, driven by subsidies, can contribute to environmental degradation, including soil erosion, water pollution, and depletion of natural resources.
- Inequity: Subsidy benefits often accrue to larger farmers rather than small-scale farmers who may need them the most, exacerbating income inequality and widening the gap between large and small agricultural producers.
Limitations Faced by Indian Agriculture:
- Subsidies on Few Crops:
- Agricultural subsidies, such as the Minimum Support Price (MSP), are applicable to only a select few crops, leading to a cereal-centric agriculture system.
- This results in distorted cropping patterns as farmers prioritise crops eligible for subsidies.
- Benefiting Only Wealthy Farmers:
- The distribution of farm subsidies often favours wealthy farmers over small-scale farmers, undermining the intended objective of supporting agricultural livelihoods.
- This disparity is particularly evident in regions like Punjab and Haryana, where affluent farmers tend to benefit disproportionately from taxpayer-funded subsidies.
- Fiscal Deficit:
- Agricultural subsidies contribute to a significant financial burden on the government, resulting in a substantial fiscal deficit.
- This strain on the financial exchequer can hinder the allocation of resources to other critical sectors and limit overall economic growth.
- Environmental Pollution:
- Subsidies for agriculture can exacerbate environmental degradation by promoting the overuse of croplands, leading to soil erosion, compaction, and pollution from synthetic fertilisers and pesticides.
- This contributes to environmental pollution and poses long-term sustainability challenges for Indian agriculture.
Way Forward:
- Diversification of Subsidies:
- Broaden subsidy programs to encompass a wider array of crops, including fruits, vegetables, pulses, and other diversified agricultural products.
- This approach aims to foster crop diversification and alleviate the prevailing cereal-centric focus in Indian agriculture.
- Targeted Subsidy Programs:
- Implement targeted subsidy initiatives that prioritise assistance for small and marginalised farmers.
- By ensuring that subsidies are directed to those most in need, such programs can help reduce the disproportionate benefits received by wealthier farmers, promoting equity and inclusivity in agricultural support schemes.
- Price Stabilisation Mechanisms:
- Develop comprehensive price stabilisation mechanisms that go beyond the Minimum Support Price (MSP). This includes initiatives such as futures markets, crop insurance, and warehouse receipt systems.
- These mechanisms serve to mitigate price volatility in agricultural markets while providing farmers with income security, without distorting cropping patterns.
UPSC Civil Services Examination, Previous Year Question (PYQ)
Prelims:
Q:1 In India, markets in agricultural products are regulated under the (UPSC IAS/2015)
a) Essential Commodities Act, 1955
b) Agricultural Produce Market Committee Act enacted by States
c) Agricultural Produce (Grading and Marking) Act, 1937
d) Food Products Order, 1956 and Meat and Food Products Order, 1973
Mains:
Q:1 How do subsidies affect the cropping pattern, crop diversity and economy of farmers? What is the significance of crop insurance, minimum support price and food processing for small and marginal farmers? (UPSC – 2017)
Q:2 What are the different types of agriculture subsidies given to farmers at the national and at state levels? Critically analyse the agricultural subsidy regime with reference to the distortions created by it (UPSC – 2013)
Source: Indian Express
FAQs
1. What are Minimum Support Prices (MSPs) for agricultural produce?
- Minimum Support Prices (MSPs) are the prices set by the Indian government to ensure farmers receive a minimum income for their crops. These prices serve as a safety net to protect farmers from market fluctuations and ensure their livelihood.
2. How do MSPs benefit farmers?
- MSPs provide farmers with price stability and income security by guaranteeing a minimum price for their produce. This assurance encourages farmers to invest in cultivation without fear of incurring losses, thereby contributing to food security and rural development.
3. Are MSPs a form of subsidy?
- Yes, MSPs can be considered a form of subsidy as the government often purchases crops from farmers at the MSP, even if market prices are lower. This ensures that farmers receive a fair price for their produce, albeit sometimes at the expense of the government’s budget.
4. Are subsidies on MSPs good or bad for India?
- The impact of MSP subsidies on India’s economy is debatable. While they provide vital support to farmers and ensure food security, they also strain government finances and can lead to market distortions. Effective implementation and reforms are necessary to balance these factors and maximize the benefits of MSPs.
5. How can India optimize MSP subsidies?
- India can optimize MSP subsidies by improving procurement mechanisms, reducing inefficiencies in distribution, and promoting agricultural diversification. Additionally, measures such as direct income support schemes and investment in rural infrastructure can complement MSPs, ensuring sustainable agricultural development while minimizing fiscal burdens.
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