Background:-

India subsidizes agricultural inputs in an attempt to keep farm costs low and production high. GOI’s intended result is for farmers to benefit from lower costs, but also for them to pass some of the savings on to the consumers in the form of lower food prices

Excessive input subsidies affected agriculture system adversely:-

• The main policy instruments to support farmers in India include subsidised fertiliser, power, agri-credit and crop insurance on the input side, loan waivers and minimum support prices for major crops on the output front. But a recent study done jointly by OECD and ICRIER estimated that trade and marketing policies of India have inflicted a huge negative price support to Indian farmers.
• According to the OECD study the producer support estimate (PSE) for India works out to be a negative 14% of gross farm receipts for the period 2000-01 to 2016-17, primarily because of restrictive policies (minimum export prices, export bans or export duties) and domestic marketing policies (due to Essential Commodities Act, APMC, etc).
• Input subsidies have resulted in overutilization of inputs. This overutilization has in turn led to soil degradation, soil nutrient imbalance, environmental harm, and groundwater depletion, all of which have caused decreased effectiveness of inputs.
• Additionally, input subsidies distort trade by increasing net exports of input intensive commodities while decreasing net exports of commodities which require relatively fewer inputs.
• Marginal returns on subsidies are way below those from investments. The results show that expenditure incurred on agri-R&E (research and education), roads or education are 5 to 10 times more powerful in alleviating poverty or increasing agri-GDP than similar expenditure made on input subsidies.
• Over time a rapid increase in input subsidies has squeezed public investments in agriculture. Excessive input subsidies have caused large scale inefficiencies in the agri-system.
• For example, fertiliser subsidies, especially on urea, have led to an imbalanced use of soil nutrients.
• Subsidies on irrigation water have resulted in the inefficient use of scarce water.
• Highly subsidised power to agriculture has led to over-exploitation of ground water. Subsidies on interest rates on crop loans has diverted substantial amounts of agri-credit to non-agricultural usage.
• Although the new crop insurance scheme, PMFBY, has dramatically reduced the burden of premiums that are paid by farmers, its effective implementation and quick settlement of claims into farmers accounts remains a challenge.

Weak Producer – Consumer Linkages:

• There is a disconnect amongst what the Indian farmer produces and what the consumer demands. The farmer is not connected to aggregators, food processors and retail chains to help shape the nature of his produce.
• As a result, produce remains the same annually, largely dependent on farmers and is often driven by the government’s MSP program.

Weak Supplier Power:

• The farmer is barely empowered as a supplier. He continues to be small & marginal, inadequately resourced, ill-informed on markets and marketing, ill-equipped to manage risk, burdened with credit & debts and is dependent on traders to reach the buyers.
• Agriculture market is primarily governed by APMC act.
• The dominant role of middlemen among others is primarily responsible for farmers not realising a reasonable price for their produce, lowering farm income and profitability
• Growth in grain yields has not matched increases in demand, nor has it resulted in efficient input usage. Farmers do not have the incentive to improve input productivity and have thus become dependent on the subsidies to sustain their production and incomes.
• The subsidy system is also causing the misallocation of resources, which may reduce India’s ability to meet its future food demand.
  Subsidies also result in detrimental environmental impacts due to resource overuse, as farmers have no incentive to use freely available resources efficiently.

Benefits of Input subsidies:-

• India’s agricultural input subsidy policies have fostered yield gains and even surpluses.
• The Indian Government provides free electricity and water for farmers, as well as subsidised seed, chemical inputs and transport. It also guarantees purchase by the government of all wheat and rice produced. This agricultural regime has certainly resulted in increased agricultural production.
• Agricultural input subsidies and the Green Revolution prevented famine in many parts of India.

Way forward :-

• Developing a policy on processed and value-added food exports can help India capture the expanding global market.
• The Organisation for Economic Co-operation and Development (OECD) and the Food & Agriculture Organization’s (FAO) recent report forecast a declining global prices outlook for India’s major agriculture export commodities like rice, sugar and cotton among others. This, along with a need to increase agricultural exports, calls for a diversification of the country’s export basket.

Agriculture focused Export Oriented Units (EOUs):-

• Domestic policies like MSP, rather than the global demand-supply scenario, are driving farmers’ sowing decisions. A policy that focuses on developing Agricultural EOUs can help India overcome this trend and increase its export basket.
• These EOUs can focus on agricultural products that have a high demand in global markets, even if they are not consumed locally in large quantities. The successes of shrimp and beef exports are good examples on which to lay the foundation for such policies.

Supporting Pulses and Oilseeds Production:-
Domestic support, in the form of government procurement and reactive foreign trade policies, is required for oilseeds and pulses. Policy support will ensure a consistent increase in area sown and production, thereby reducing the country’s reliance on imports.

Developing Agricultural Infrastructure:-

• India lags in the area of agricultural infrastructure, an effective policy for which will enhance crop production and yields. Greater production will enhance exports. Increased production of oilseeds and pulses will help reduce the agricultural import bill.
• An infrastructure development policy along with crop production will also provide support to the processed and value-added food products industry (e.g. better cold-chain facilities).
• The smarter way to support agriculture and alleviate rural poverty would have been to invest in agriculture at a faster rate than the growth of subsidies.
  The present system of delivering subsidies through a price policy needs to be shifted to an income policy which would be well targeted and minimise leakages, something along the lines of the JAM trinity.

Investments need to be prioritised towards agri-R&D, roads and education :-

• Interestingly now at a global level the private sector is leading in agri-R&D. If India needs to access that technology, it needs to develop a proper IPR regime which is in the interest of farmers as well as investors.
• India has a lesson to learn from China in this aspect too. ChemChina, a PSU, has taken over Syngenta Corporation for $43 billion, which is a leading player in crop protection and seeds.

Comprehensive vision document to promote and establish direct linkages between growers and consumers:

• A policy framework that promotes structured, direct linkages between professional aggregators, food chain collaborators, food processors with large FPOs/Land Banks will reduce uncertainties drastically. This will ensure a fair share of the value created at the terminal end insuring the farmer from concentrated risk.
• ICRIER study recommended a host of policy reforms such as phasing out the built-in consumer bias, create space for private players to have access to integrated markets, and using income transfers to protect both poor consumers and small farmers. It also suggested creating a predictable and stable trade policy.

Committee on Doubling Farmers Income under the chairmanship of Ashok Dalwai has recommended :-

• Rolling out the model Agriculture Produce Marketing Committee (APMC) Act 2017 which would facilitate single-point levy of taxes
• Promote direct interface between farmers and end-users
• Give freedom to farmers to sell their produce to whomsoever and wherever they get better prices.