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.