India’s farm sector benefits from both direct subsidies like input support and indirect subsidies such as infrastructure development. However, the World Trade Organization (WTO) has raised concerns regarding the extent of these subsidies and their compliance with global trade rules.

Q.14 What are the direct and indirect subsidies provided to the farm sector in India? Discuss the issues raised by the World Trade Organization(WTP) in relation to agricultural subsidies.

Model Answer:

Introduction

A subsidy is defined as a form of financial assistance paid to an economic sector (institution, business or individual) to achieve certain policy objectives. Both Central and State governments direct and indirect subsidies to support agricultural production and alleviate the financial burdens on farmers.

Body

Direct and Indirect Subsidies in the Farm Sector in India

Direct Subsidies

  1. Minimum Support Price (MSP)
    • The government announces MSPs for various crops to ensure farmers receive a minimum price for their produce.
    • Example: MSP for wheat in the 2023-24 season was ₹2,125 per quintal.
  2. Direct Benefit Transfer (DBT)
    • Schemes like PM-KISAN provide direct income support to farmers.
    • Example: Under PM-KISAN, ₹6,000 per year is transferred directly to the bank accounts of eligible farmers.
  3. Input Subsidies
    • Fertiliser Subsidy: The government provides subsidies on fertilisers to make them affordable.some text
      • Example: The subsidy on urea is substantial, with the government bearing a significant portion of the cost.
    • Seed Subsidy: Subsidies are provided on high-quality seeds to encourage their use.
    • Electricity Subsidy: Many states provide free or subsidised electricity for agricultural purposes.
  4. Irrigation Subsidy
    • Subsidies are provided for the installation of irrigation systems like drip and sprinkler irrigation.
    • Example: Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) offers subsidies for micro-irrigation.
  5. Crop Insurance
    • Premium subsidies are provided under schemes like Pradhan Mantri Fasal Bima Yojana (PMFBY) to make crop insurance affordable.

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Indirect Subsidies

  1. Subsidised Credit
    • Farmers receive loans at subsidised interest rates through schemes like Kisan Credit Card (KCC).
    • Example: Interest subvention schemes reduce the effective interest rate on crop loans.
  2. Subsidised Transport and Storage
    • Subsidies are provided for the transportation and storage of agricultural produce.
    • Example: The government offers subsidies for cold storage facilities to reduce post-harvest losses.
  3. Research and Development
    • Government funding for agricultural research institutions like ICAR (Indian Council of Agricultural Research) indirectly benefits farmers by improving crop yields and farming practices.
  4. Market Infrastructure
    • Investment in market infrastructure like mandis, cold chains, and e-NAM indirectly supports farmers by improving market access and reducing transaction costs.

Issues Raised by the World Trade Organization (WTO) in Relation to Agricultural Subsidies

WTO's Agreement on Agriculture (AoA)

The WTO's AoA classifies subsidies into three categories:

  • Green Box: Subsidies that cause minimal distortion to trade (e.g., research, environmental programs).
  • Amber Box: Subsidies that distort trade and are subject to reduction commitments (e.g., price support measures).
  • Blue Box: Subsidies that are tied to programs that limit production.

Key Issues Raised by WTO

  1. Trade Distortion
    • The WTO argues that India's MSP and other price support measures fall under the Amber Box and distort international trade by artificially inflating prices.
  2. Breach of De Minimis Limits
    • Under the AoA, developing countries like India are allowed to provide product-specific subsidies up to 10% of the total value of production. The WTO has raised concerns that India's subsidies exceed these limits.
  3. Transparency and Notification
    • The WTO requires member countries to notify their subsidy programs. India has been criticised for delays and lack of transparency in reporting its subsidies.
  4. Public Stockholding Programs
    • India's public stockholding programs for food security purposes have been a contentious issue. While India argues these are essential for food security, the WTO contends they can distort trade if the procured stocks are released into the market.
  5. Export Subsidies
    • The WTO has raised concerns about India's export subsidies, which can make Indian agricultural products artificially competitive in the global market.

Conclusion

India's agricultural subsidies are crucial for supporting its large farming community, but they have come under scrutiny from the WTO for potentially distorting trade. Balancing domestic agricultural support with international trade commitments remains a significant challenge for India. Understanding these issues is essential for formulating policies that support farmers while complying with global trade norms.

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