An agricultural subsidy is an incentive in the form of monetary payments and other types of support given by the government to farmers, agribusinesses etc. to promote agricultural production, development, production, self-sufficiency etc.

Types of agricultural subsidies in India

1. Input subsidies incentivise inputs such as Fertiliser, power, and seed. Some incentivise inputs explicitly while in some cases it might be implicit.
2. Output subsidies are on a particular agricultural product such as by restrictive trade policy, inflated product prices in the market etc.
3. Price subsidy provides price support like Minimum Support Price (MSP) on wheat and rice.
4. Infrastructural subsidy on capital investment for example building of godowns and cold storages.
5. Credit and export subsidies such as loans through priority sector lending quota for farmers in India.

Major subsidies in India are fertiliser, power, credit, output, seed, and export subsidies. In 2021 Agri-subsidies were around 5 lakh crores as per NITI Aayog (including food and fertiliser subsidies).

Significance of agri-subsidy regime

• Helped ensure food security by subsiding wheat and rice. Production went up from 50 million tonnes of food grains in the 1950s to more than 300 million tonnes presently.
1. India no longer depends on imports for its food requirements, saving crucial foreign exchange.
• Help farmers to reduce input costs and increase profit margins.
• Improvement in productivity of land such as through fertiliser subsidies by greater adoption of fertilisers.
• Creation of capital assets through infrastructure subsidy for example cold storage to reduce post-harvest losses of perishable agricultural produce.

Issues with agricultural subsidies  

• Most indirect subsidies on fertiliser, power and irrigation water contribute to the degradation of natural resources ( by excessive use of subsidised resources ) such as soil salinity and stress on groundwater aquifers in Punjab due to free power.
• Distortion of cropping patterns such as through Minimum Support Price due to open-ended wheat and rice procurement system. These have led to cereal-centric, regionally biassed and input-intensive agricultural systems.
• Pricing of fertilisers -Fixing urea price compared to nutrient based subsidy in other fertilisers has led to high urea use distorting N:P:K ratio affecting soil adversely; Now Di-Ammonium Phosphate’s ( DAP) prices are alleged to be indirectly fixed with fears of DAP being second urea.
1. Less focus on micronutrients causes an imbalance of soil nutrients and deterioration of soil quality and declining land productivity. Also, the marginal productivity of soil in relation to the application of fertilisers is declining.
• Compromise of investment in capital infrastructure in agriculture. From 1976 to 2003- subsidies increased but public investment in agriculture declined.
• Fiscal burden to states for example through free power as per economic survey 2022. This also affects the state of electricity distribution companies.
• Indiscriminate subsidy use can create inefficiencies since they embed incentives for fraud, diversion and waste. These eventually become entrenched, accumulate and pose a threat to their sustainability.
• Direct subsidy cash such as transfers of PM-KISAN can be used in other priorities impacting agricultural productivity.

Decreasing bills on food and fertilisers and investment in research, and efficiency in government expenditure can increase farmers’ incomes in the long run through more productive investment. Thus there is a need for better policy deliberations with all stakeholders to reduce negative impacts, particularly on small and marginal farmers to realise an evergreen revolution with sustainable agriculture in India.