Q. What are the direct and indirect subsidies provided to farm sector in India? Discuss the issues raised by the World Trade Organization (WTO) in relation to agricultural subsidies. (250 Words, 15 Marks)
Why the Question?
UPSC PYQ – CSE Mains – 2023
Keywords of the Question
- Direct and indirect subsidies
- Farm sector in India
- Issues raised by the World Trade Organization
- Agricultural subsidies
Directive Word
Discuss – Essentially this is a written debate where you are using your skill at reasoning, backed up by carefully selected evidence to make a case for and against an argument, or point out the advantages and disadvantages of a given context. Remember to arrive at a conclusion
How to approach this Question?
Introduction
- Briefly introduce the concept of agricultural subsidies.
- Mention the significance of these subsidies in the Indian context.
Body
- Direct Subsidies:
- Minimum Support Price (MSP)
- Fertilizer Subsidy
- Interest Subsidy on Agricultural Loans
- Direct Benefit Transfer (DBT) schemes like PM-KISAN
- Crop Insurance Subsidy
- Indirect Subsidies:
- Public Distribution System (PDS)
- Electricity Subsidy
- Irrigation Subsidy
- Research and Extension Services
- Issues Raised by WTO:
- Market Distortion
- Trade Distortion
- Compliance with WTO Agreements (e.g., Agreement on Agriculture)
Conclusion
- Summarize the importance of balancing subsidies with international trade norms.
- Suggest a way forward to address WTO concerns while supporting farmers.
Note: Please note that the following ‘answers’ are not ‘model answers’ nor are they synopses in the strictest sense. Instead, they are content designed to meet the demands of the question while providing comprehensive coverage of the topic.
Answer Key
Introduction
Agricultural subsidies are financial aids provided by the government to support farmers, enhance their income, reduce farming costs, and promote agricultural sustainability. These subsidies are crucial for maintaining the health of the farm sector, especially in developing economies like India.
Body
Direct Subsidies:
- Minimum Support Price (MSP): The government announces MSP for certain crops, ensuring farmers receive a minimum price for their produce. For example, the MSP for wheat in 2023-24 was set at ₹2,125 per quintal.
- Fertilizer Subsidy: Subsidies on fertilizers like Urea and DAP make them affordable for farmers, ensuring essential nutrients for crops. For instance, the government provides a subsidy of ₹1,200 per bag of Urea.
- Interest Subsidy on Agricultural Loans: Schemes like Kisan Credit Card (KCC) offer loans at subsidized rates, reducing the financial burden on farmers. For example, farmers can avail loans at an interest rate of 4% under the KCC scheme.
- Direct Benefit Transfer (DBT) Schemes: PM-KISAN provides ₹6,000 per year to eligible farmers in three installments. This scheme aims to provide direct income support to farmers.
- Crop Insurance Subsidy: Pradhan Mantri Fasal Bima Yojana (PMFBY) offers subsidized crop insurance to protect farmers from losses due to natural calamities. For example, farmers pay only 2% of the premium for Kharif crops under PMFBY.
Indirect Subsidies:
- Public Distribution System (PDS): Ensures availability of essential food items at affordable prices, indirectly supporting farmers by stabilizing demand. For instance, rice is provided at ₹3 per kg under PDS.
- Electricity Subsidy: Subsidized electricity for agricultural purposes, including irrigation and machinery. For example, states like Punjab provide free electricity to farmers for irrigation.
- Irrigation Subsidy: Government schemes like Accelerated Irrigation Benefits Program (AIBP) help states complete irrigation projects. For instance, the Sardar Sarovar Project in Gujarat received significant funding under AIBP.
- Research and Extension Services: Investments in agricultural research and extension services improve farming techniques and technologies. For example, the Indian Council of Agricultural Research (ICAR) conducts extensive research to develop high-yielding crop varieties.
Issues Raised by WTO:
- Market Distortion: Subsidies like MSP can lead to overproduction and surplus dumping, distorting global agricultural markets. For example, India’s surplus rice stocks have been a point of contention.
- Trade Distortion: Subsidies can make Indian agricultural products cheaper than those from other countries, affecting international trade. For instance, subsidized sugar exports from India have faced criticism.
- Compliance with WTO Agreements: India’s subsidies need to align with WTO’s Agreement on Agriculture, which aims to reduce trade-distorting subsidies. For example, India’s public stockholding programs have been challenged at the WTO.
- Amber Box Subsidies: These are trade-distorting subsidies that need to be reduced or eliminated under WTO rules. For instance, the MSP is considered an Amber Box subsidy.
- Export Subsidies: WTO rules prohibit export subsidies that can distort international trade by making exports artificially competitive. For example, India’s sugar export subsidies have been a subject of dispute.
- Public Stockholding: India’s public stockholding programs for food security are under scrutiny for potentially exceeding WTO limits on trade-distorting support. For instance, the National Food Security Act involves large-scale procurement of grains.
Conclusion
Balancing agricultural subsidies with international trade norms is essential. While subsidies support farmers, addressing WTO concerns through reforms and compliance with global standards is crucial for sustainable agricultural growth and fair trade practices.
Mind Map
