Q5. What are the different types of agriculture subsidies given to farmers at the national and state levels? Critically analyze the agriculture subsidy regime concerning the distortions created by it.

Model Answer:

Introduction

Agricultural subsidies in India provide essential support to farmers, enhancing productivity and income stability. Yet, these subsidies often lead to unintended economic and environmental distortions.

Body

Types of Agricultural Subsidies

  1. Input-based Subsidies: Fertilizer, electricity, and irrigation subsidies lower production costs but can encourage overuse and environmental degradation.
  2. Price-based Subsidies: Minimum Support Prices (MSP) ensure fair prices for crops, especially wheat and rice, often distorting crop diversification.
  3. Insurance and Income Support: Schemes like PM-KISAN offer direct income support, while PMFBY provides crop insurance, though administrative issues limit effectiveness.
  4. Credit Subsidies: Low-interest credit ensures the affordability of capital; however, funds are often inaccessible to marginalized farmers due to eligibility constraints.
  5. Infrastructure and Mechanization Subsidies: Subsidies for rural infrastructure and farm machinery modernize agriculture but tend to benefit large farmers disproportionately.

Distortions Created by Subsidy Regime

  1. Resource Misallocation: Overemphasis on crops supported by MSP, mainly wheat and rice, reduces crop diversity, limiting productivity in non-MSP crops.
  1. Environmental Impact: Subsidies on water and power for irrigation lead to groundwater depletion and soil degradation, particularly in states like Punjab and Haryana.
  2. Fiscal Burden: Subsidies strain state and national budgets, with funds potentially more impactful in areas like rural education or health.
  3. Inequality in Access: Large-scale farmers reap more benefits, widening disparities as marginalized farmers struggle to access subsidies and institutional credit.
  4. Market Inefficiencies: Heavy reliance on subsidies undermines agricultural market efficiency, reducing competitiveness and creating dependency among farmers.

Conclusion‍

Agriculture subsidies are vital for stability, but their restructuring is essential. Emphasizing sustainability, inclusivity, and market-driven approaches can reduce distortions and improve productivity equitably.

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