Agriculture subsidy

Mains Marks Booster     4th August 2023        
Samadhaan

Issues related to Direct and Indirect Farm Subsidies

An agricultural or farm subsidy is a financial aid provided by the government to the farmers, agribusiness owners, and agricultural raw material suppliers. 

A survey shows that around 21% income of the farmers per hectare is facilitated by the government subsidy

Types of subsidies

  • Direct subsidies- Which are provided to farmers directly in cash or kind. Eg . PM KISAN, Farm loan waiver.
  • Indirect subsidies - Which are provided to farmers by giving discount on agriculture purchase. eg. fertilizer, irrigation, seeds.

The total subsidy offered to the Indian farmers accounts for 2% of the total GDP of India.

Advantages of subsidies

                  Direct subsidies

  • Increase purchasing power of farmers.
  • Beneficiaries are free to choose products according to their needs.
  • Prevents misuse of public fund
  • Reduces government burden
  • Reduce excess use e.g., farmer can control quantity required.

                      Indirect subsidies 

  • Supplying high quality inputs.
  • Crucial in technological and infrastructure advancement.
  • Ensures food security.
  • Helps to limit migration from the agriculture sector.

Issues related to subsidies 

                Direct subsidies

  • Lack of financial inclusion at rural level eg. banks, ATM
  • Unproductive use of money.
  • May cause inflation.
  • Lack of market discipline.
  • No identification of real beneficiaries
  • No investment on infrastructural advancement.

                      Indirect subsidies 

  • Skewed cropping pattern -eg. due to MSP cereal centric agriculture.
  • Exploitation of natural resources such as water
  • Corruption and leakages - PDS
  • Inconsistency with WTO rules on subsidies.

Measures to deal with issues of farm subsidies:

Measures to deal with issues of farm subsidies

Fertilizer subsidy in India

The difference between the cost of production and actual amount of fertilizer is the amount of subsidy borne by the government.

  • Urea Subsidy Scheme: At present the Urea is being provided to the farmers at a statutorily noti?ed Maximum Retail Price (MRP) of Rs.242 per 45 kg bag of urea The di?erence between the delivered cost of urea at farm gate and net market realization by the urea units is given as subsidy to the urea manufacturer/importer by the Government of India. Accordingly, all farmers are being supplied urea at the subsidized rates.
  • Nutrient Based Subsidy Scheme: Fertilizers are provided to the farmers at the subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers.

Issues related to fertilizer subsidy

    • Overuse of fertilizers: which can degrade soil quality, harm the environment, and reduce long-term agricultural productivity. For instance,  current NPK ratio is 6.7:2.4:1, which is highly skewed towards Nitrogen as against the ideal ratio of 4:2:1.
    • Inefficient distribution system: distributed through a complex network of intermediaries, which can result in inefficiencies, delays, and high transaction costs. 
    • Fiscal burden: fertilizer subsidies are putting extra pressure on the fiscal health. For instance, the subsidy bill is likely to cross Rs 200,000 crore in 2022-23.
    • Black marketing in Urea: Urea is often found to be smuggled for industrial and other purposes

Recent developments/initiatives:

  • One Nation One Fertiliser Scheme:
  • The government has introduced a “Single Brand for Fertilizers and Logo” under the fertilizer subsidy scheme named “Pradhanmantri Bhartiya Janurvarak Pariyojna” (PMBJP). 
  • Under the new “One Nation One Fertiliser” scheme, companies are allowed to display their name, brand, logo and other relevant product information only on one-third space of their bags. 

Rational for the scheme:

  • The maximum retail price of urea is currently fixed by the government, which compensates companies for the higher cost of manufacturing or imports incurred by them. 
  • To unify fertilizer brands nationwide, regardless of the company that manufactures achieve uniformity in the fertilizer market and ensure product differentiation under the same type of brand.
  • To prevent the interlaced movement of fertilizers and save transit time and cost as a single brand name will aid in lowering freight costs and guarantee their availability all year long regardless of brand preferences.
  • Direct Benefit Transfer (DBT) project for fertilizer subsidy payment: 
  • Department of Fertilizers (DoF) has implemented Direct Bene?t Transfer (DBT) project for fertilizer subsidy payment with a view to improve fertilizer service delivery to farmers. Under the fertilizer DBT system, 100% subsidy on various fertilizer grades is released to the fertilizer companies on the basis of actual sales made by the retailers to the bene?ciaries. 
  • “PM Programme for Restoration, Awareness, Nourishment and Amelioration of Mother Earth” (PM-PRANAM) scheme was announced in Budget 2023-24 with the objective to incentivize the States and UTs to promote usage of alternative fertilizers and balanced use of chemical fertilizers. 
  • Nano Urea: Nano urea is a liquid fertilizer developed by IFFCO. Government of India has recently notified the specifications of Nano nitrogen under Fertilizer Control Order, 1985.

Way forward

  • Need of uniform policy- for all the nutrients which are necessary for crop production.
  • Addition of other nutrients and micronutrients which can improve not Only yield but also the health of soil.
  • Revival of the Chemical Fertilizer Plants: to improve the availability of fertilizers in India.
  • Other alternatives -Efforts should be made to promote organic farming, biofertilizers etc.

Fertilizers are critical inputs to increase output of agriculture, designing of fertilizer subsidy should be framed while keeping in mind about health of soil and environmental impacts.

Direct benefit transfer scheme

What is DBT?

Direct Benefit Transfer (DBT) was introduced on 1 January 2013 with the main aim of improving the Government's delivery system and redesigning the current procedure in welfare schemes by making the flow of funds and information faster, secure, and reduce the number of frauds.

Advantages of DBT

  • Fast and easy transfer of money- by Aaadhar card payment is getting easy and seamless.
  • Better beneficiaries’ identification -Biometric system solves the problem of ghost beneficiaries and duplication.
  • Expanded Coverage - Aadhar to all improved the coverage of banking and telecom sector.
  • Improve social security - eg.PM AWAS YOJANA, UJWALA YOJANA
  • Equitability- in terms of services such as Aadhar gives everyone the same access.
  • Free to choose- beneficiaries got an opportunity to choose what they need.

Limitation of DBT

  • Accessibility - to banking facilities and ATM’s
  • Unproductive use- diversion of money to another unintented purpose kills the purpose of DBT
  • Exclusion - eg, Telangana Rythu Bandhu scheme - exclusion of tenants.
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