Types Of Agriculture Subsidies Available To Indian Farmers
export subsidy fertilizer subsidy irrigation subsidy price subsidy seed subsidy
Price Subsidy:
It is the difference between the price of food-grains at which FCI procures food-grains from farmers, and the price at which PCI sells either to traders or to the PDS. The market price may be so low that the farmers will have to bear losses instead of making profits. In such a case the government may promise to buy the crop from the farmers at a price which is higher than the market price.
The difference between the two prices is the per unit subsidy granted to the farmers by the government. The price at which the government buys crops from the farmers is called the procurement price. Such procurement by the government also has a long run impact. It encourages the farmers to grow crops which are regularly procured.
Input Subsidies:
Subsidies can be granted through distribution of inputs at prices that are less than the standard market price for these inputs. The magnitude of subsidies will therefore be equal to the difference between the two prices for per unit of input distributed. Naturally several varieties of subsidies can be named in this category.
(a) Fertilizer Subsidy:
Supply of cheap fertilizers (chemical / non-chemical) to farmers. It amounts to the difference between price paid to manufacturer of fertilizer (domestic or foreign) and price, received from farmers.
This subsidy ensures:
Cheap inputs to farmers, reasonable returns to manufacturer,stability in fertilizer prices and availability of fertilizer to farmers.
In some cases this kind of subsidies are granted through lifting the tariff on the import of fertilizer, which otherwise would have been imposed.
(b) Irrigation Subsidy:
Irrigation subsidy is the difference between operating and maintenance cost of irrigation infrastructure in the state and irrigation charges recovered from farmers. This may work through provisions of public goods such as canals, dams which the government constructs and charges low prices or no prices at all for their use from the farmers. It may also be through cheap private irrigation equipment such as pump sets.
(c) Power Subsidy:
The electricity subsidies imply that the government charges low rates for the electricity supplied to the farmers. Power is primarily used by the farmers for irrigation purposes. It is the difference between the cost of generating and distributing electricity to farmers and price received from farmers.
The State Electricity Boards (SEBs) either generate the power themselves or purchase it from other producers such as NTPC and other SEBs. Power subsidy “acts as an incentive to farmers to invest in pump sets, bore-wells, etc.
(d) Seed Subsidies:
High yielding seeds can be provided by the government at low prices. The research and development activities needed to produce such productive seeds are also undertaken by the government, the expenditure on these is a sort of subsidy granted to the farmers.
(e)Credit Subsidy:
It is the difference between interest charged from farmers, and actual cost of providing credit, plus other costs such as write-offs bad loans. Availability of credit is a major problem for poor farmers. They are cash strapped and cannot approach the credit market because they do not have the collateral needed for loans. To carry out production activities they approach the local money lenders.
Taking advantage of the helplessness of the poor farmers the lenders charge exorbitantly high rates of interest. Many times even the farmers who have some collateral cannot avail loans because banking institutions are largely urban based and many a times they do not indulge in agricultural credit operations, which is considered to be risky.
To tackle these problems the government can provide:
(1) More banking operations in rural areas-which will advance agricultural loans, and
(2) The interest rates can be maintained low through subsidization schemes, and
(3) The terms of credit (such as collateral requirements) can be relaxed for the poor.
Infrastructural Subsidy:
Private efforts in many areas do not prove to be sufficient to improve agricultural production. Good roads, storage facilities, power, information about the market, transportation to the ports, etc. are vital for carrying out production and sale operations. These facilities are in the domain of public goods, the costs of which are huge and whose benefits accrue to all the cultivators in an area.
No individual farmer will come forward to provide these facilities because of their bulkiness and inherent problems related to revenue collections (no one can be excluded from its benefit on the ground of non-payment). Therefore the government takes the responsibility of providing these and given the condition of Indian farmers a lower price can be charged from the poorer farmers.
Export Subsidy:
This type of subsidy is not different from others. But its purpose is special. When a farmer or exporter sells agricultural products in foreign market, he earns money for himself, as well as foreign exchange for the country. Therefore, agricultural exports are generally encouraged as long as these do not harm the domestic economy. Subsides provided to encourage exports are referred as export subsidies.
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