Context:
The latest report titled Agricultural Policy Monitoring and Evaluation 2023 by the Organisation for Economic Co-operation and Development (OECD) has shed light on the implicit taxation of Indian farmers in 2022.
Relevance:
GS III: Agriculture
Dimensions of the Article:
- Key Highlights of the Report
Key Highlights of the Report:
- In 2022, India had a substantial negative Market Price Support (MPS) compared to 54 countries analyzed in the OECD report.
- Globally, the total implicit taxation for farmers in these countries was approximately USD 200 billion, with India accounting for a significant share of USD 169 billion.
Market Price Support (MPS):
- MPS represents the value of financial transfers from consumers and taxpayers to agricultural producers, caused by policies creating price differences between domestic and international markets.
- It quantifies the gains or losses experienced by farmers when domestic prices deviate from global prices.
Negative MPS in India:
- India’s negative MPS was not offset by budgetary support, in contrast to other emerging economies.
- Various budgetary transfers, including subsidies for inputs like fertilizers and electricity, along with programs like Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), couldn’t compensate for the negative impact of domestic marketing regulations and trade policies.
- Budgetary transfers accounted for 11% of total farm receipts, while negative MPS reached 27.5% for different commodities, resulting in an overall negative net support of 15% of gross farm receipts.
Impact of Export Policies in India:
- In 2022, India introduced export bans, duties, and permits on various commodities, partly in response to the situation in Ukraine and extreme weather conditions.
- These measures aimed to stabilize domestic prices but adversely affected farmers’ incomes.
- Affected commodities included rice, wheat, sugar, onions, and related products, leading to concerns about India’s role as a global agricultural supplier.
- These policies had repercussions not only on domestic markets but also on India’s global agricultural presence.
Global Producer Support:
- The report noted that producer support for the agriculture sector averaged USD 851 billion annually across the 54 countries during 2020-2022.
- This increase was attributed to responses to the Covid-19 pandemic, inflation, and the Ukraine war.
Potentially Distorting Policies:
- Two-thirds of the positive support to producers in these countries fell under categories considered ‘potentially most distorting’ to production and trade.
- These categories included payments based on output and unrestrained use of variable inputs, which can lead to inefficiencies and non-targeted support.
Emerging Economies and Distorting Policies:
- Emerging economies exhibited potentially more distorting policies, generating both positive support (10% of gross farm receipts) and implicit taxation (6% of gross farm receipts) during 2020-2022.
- In contrast, OECD countries had fewer potentially distorting policies and did not implicitly tax producers.
-Source: The Hindu
