Move away from subsidies, sooner than later

Rajalakshmi Nirmal | Updated on June 23, 2019 Published on June 23, 2019

File photo   -  THE HINDU

Farm subsidies are a drain on public finance; only capital investment can help farmers come out of the poverty trap

There is increasing discussion on replacing farm subsidy with direct cash transfer. But subsidies and money doles may not be enough to end farmers’ woes.

A farmer from a remote village in south Tamil Nadu, when asked if he would be happy with cash payout of ₹20,000/hectare a year in lieu of subsidies, he replied, “No”. When an offer of doubling the payout to ₹40,000 was made, he was still unmoved. When asked why, his reply was, “My problems will not go away even if the government takes care of the full cost of farming. I will still need money for my household expenses and education of my children. Today, I don’t get enough money for all this by selling my crop…” This farmer is the lone earning member in his family of eight.

Subsidising the cost of inputs is not going to end problems of the marginal farmers of India. By offsetting high cost on inputs for farmers and helping them produce more and earn more, it initially creates a delusion of a healthy farm sector, but eventually, problems arising from lack of infrastructure and market inefficiency hit back, as are happening now.

Completely stopping subsidies may not be possible now, but it can be rationalised.

Input subsidies including those on urea, which has resulted in overuse of nitrogenous fertilisers and spoilt soil health, and power, which has resulted in depletion of the groundwater, have to eventually go. But to start with, the government can see if these subsidies can be paid via DBT (Direct Benefit Transfer) so as to plug leakages.


An Indian farmer enjoys numerous subsidies — right from free power, water, heavily discounted fertiliser, interest subvention on loans to discounted premium on crop insurance and minimum support prices for crops. The government spent about ₹2.56-lakh crore on various subsidies for the farm sector in 2018-19, a jump of 43 per cent over the previous year thanks to higher MSP on crops. For 2019-20, farm subsidies are set to balloon further to ₹2.77-lakh crore.

However, on the ground, there has not been much cheer for farmers.

By eating into money intended for capital investment, subsidies are a key reason for the sufferings of farmers. Today, leave aside assaying machines, less than 50 per cent of mandis in the country have weighing machines. Also, only about 15 per cent of the APMCs have cold storage facilities.

The other problem is that the input subsidies for agriculture have resulted in unmindful use of resources such as water and power and skewed the cropping pattern, which has, , in the process, taken a toll on the environment as well. Monoculture has resulted in an increase in pest and disease attacks on crops and higher usage of chemical fertilisers.

The way forward

So, should farm subsidies be stopped? Even economists who for decades have written on how farm subsidies actually do more harm than good, will not stick their neck out to say ‘yes’ to this as subsidies are very popular with the farmer community.

The answer, therefore, is to rationalise subsidies. Link them to the size of the farm-holding and not offer them to every other farmer. Also, pay all farm subsidies via DBT so that they reach the right beneficiaries. Slowly, however, the government should withdraw subsidies and possibly convert them to capital investments in the sector.

The impact of capital investment on both agricultural yield and poverty will be far higher than of subsidies.

In its manifesto, the BJP promised investment of ₹25-lakh crore in agriculture over five years. This money can be invested in building a national-level warehousing grid with smaller warehouses near the farm-gate, setting up of agri-processing centres and providing assaying and grading machinery at mandis.

Warehouses are essential to give small farmers pricing power. They will help farmers store the produce and sell it at a time it fetches a good price. This said, there is also need for long-term policies on export trade. Once this is in place, government departments can engage with exporters on a regular basis and keep farmers abreast of the global demand/supply and price situations.

There are talks about a technical committee with ICAR-NIAP as knowledge partner working on building an agri market intelligence system to put out price and demand forecasts for various major foodgrains and price-sensitive horticulture crops. This needs to be fast-tracked. Also, the government should look at how it can aggregate the small land-holdings and help farmers draw benefit from farm mechanisation.

Subsidy-driven agriculture is not sustainable. The government should let go off populist measures and focus on capital investments in agriculture if it is really concerned about the country’s farmers.

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Published on June 23, 2019
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