8.22         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.