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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.

Agricultural subsidies have long been a cornerstone of India’s agrarian policy, assisting farmers in increasing productivity, ensuring food security, and stabilizing income levels. These subsidies can be classified into direct and indirect subsidies.

Direct Subsidies:

  1. Pradhan Mantri Kisan Samman Nidhi (PM-KISAN): A cash transfer scheme providing ₹6,000 annually in three equal installments directly to the bank accounts of small and marginal farmers.
  2. Crop Insurance: The Pradhan Mantri Fasal Bima Yojana (PMFBY) provides insurance cover for crops against natural calamities, pests, and diseases at subsidized premiums.
  3. Direct Benefit Transfers (DBT): Subsidies transferred directly to farmers’ bank accounts for fertilizers.

Indirect Subsidies:

  1. Fertilizers: Subsidized rates of fertilizers, such as Urea, DAP, and MOP, provided to farmers.
  2. Irrigation: Government investments in large-scale projects like dams and canals, reducing the water procurement cost for farmers.
  3. Electricity: Highly subsidized or free electricity provided to farmers for irrigation.
  4. MSP (Minimum Support Price): A form of indirect subsidy where the government guarantees a certain price for specific crops, procuring them directly if market prices fall below the MSP.
  5. Credit: Concessional interest rates on agricultural loans provided by banks under priority sector lending.

WTO’s Concerns on Agricultural Subsidies:

  1. Market Distortion: WTO argues that these subsidies can distort international trade, leading to an uneven playing field by giving Indian agricultural exports an unfair advantage.
  2. Aggregate Measurement of Support (AMS): WTO mandates that subsidies should not exceed 10% of the total value of agricultural production. There are concerns that India’s MSP-based procurement might breach this limit.
  3. Public Stockholding: WTO has raised issues regarding India’s procurement for public stockholding, saying it might distort trade and affect food security in other developing nations.
  4. Export Subsidies: India’s incentives to agricultural exports, like exemptions from certain duties and taxes, have been flagged by WTO as potential trade distorters.
  5. Environmental Concerns: There are arguments that certain subsidies, like those for water and electricity, might encourage overuse, leading to environmental issues which can impact global ecological balance.

While subsidies play an integral role in supporting India’s vast agrarian landscape, aligning them with global trade norms is essential. A balanced approach, considering both the welfare of Indian farmers and international trade commitments, is crucial for sustainable agricultural growth.

February 2024