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PYQ 1200 Q/A Part - 1
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Kerala PSC Indian Economy Book Study Materials Page 216
Book's First Page8.22 ndian onom Direct farm subsidies: These are the kinds of on subsidies, all indirectly. For example, in subsidies in which direct cash incentives are paid fertilizers, which accounts for two-thirds of total to the farmers in order to make their products subsidies, the government fixes a low selling more competitive in the global markets. The price and compensates the producers by paying developed countries (USA and Europe) spend the difference between the selling price and the huge amounts of their annual budgets on the actual production costs (plus a pre-decided profit agriculture, farm and fisheries subsidies. Direct margin) as subsidy. Important issues related to farm subsidies are helpful as they provide the right farm subsidies are as given below: levels of purchasing power to the farmer and can (i) The indirect subsidy has been blamed significantly help in raising the standards of living for benefiting big farmers more than the of the rural poor. They also help in checking the small and medium farmers, for whom the misuse of public funds as they help in the proper subsidy is intended. This is because the identification of the beneficiaries. bulk of the subsidised fertilizers is picked Indirect farm subsidies: These are the farm subsidies up by the rich farmers, because the small which are provided in the form of cheaper credit and marginal farmers account for just 37 facilities, farm loan waivers, reduction in irrigation per cent of the farm land. and electricity bills, fertilizers, seeds and pesticides (ii) Indirect subsidy has also discouraged subsidy as well as the investments in agricultural improvements in production processes research, environmental assistance, farmer training, since manufacturers have no incentive to etc. These subsidies are also provided to make farm increase efficiency. This will also play a products more competitive in the global market. big part in bringing down India’s overall The subsidies provided on the fertilizers as subsidy bill. For instance, according to ‘input’ subsidies are in the form of indirect subsidies. industry estimates, the money spent on But if the government does not incentivize the poor farmers could potentially come farmer by an effective cost reduction in prices of down to Rs. 37,000 crore from the the fertilizers, but provides direct cash incentives current Rs. 100,000 crore. after the produce, is known as a direct subsidy. The World Trade Organization (WTO) has (iii) Another advantage of cash subsidies is put some ceilings on the amount of direct and that it will free up the distribution system indirect subsidies being provided by the various and allow the people who receive the developing and developed nations due to the fact subsidy to choose where they buy their that these subsidies distort the free market forces goods from. The complexity is not so which have their own implications. much in the transfer of funds, as it is in First thoughts are encouraging. A panel the identification of the beneficiaries. headed by Montek Singh Ahluwalia (the then Other Countries: The idea of disbursing Deputy Chairman, Planning Commission) subsidies directly to the beneficiaries is becoming recommended that the power ministry, instead of popular among the development thinkers and paying power-distribution companies, hand out policymakers. It’s already a part of policy in many electricity subsidies directly to farmers through a parts of the world—predominantly, in Latin smart card linked to the unique identity number. America where 16 countries have this practice, India spends about Rs. 1,60,000 crore and also in other countries such as Jamaica, every year or roughly 2 per cent of its GDP Philippines, Turkey and Indonesia.