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.

Model Answer: 

Agricultural Subsidies in India and WTO Concerns

Agricultural subsidies are financial support provided by the government to farmers and the agricultural sector. In India, these subsidies play a crucial role in supporting food security, rural livelihoods, and overall economic stability. 

Direct Subsidies:

1. Fertilizer Subsidies: The government provides subsidies on fertilizers to ensure their affordability for farmers, promoting increased crop yields.

2. Minimum Support Price (MSP): The government sets MSPs for various crops, guaranteeing a minimum price to farmers and protecting them from market fluctuations.

3. Crop Insurance: Subsidized insurance schemes like Pradhan Mantri Fasal Bima Yojana protect farmers against crop failures due to natural calamities.

4. Interest Subvention: Farmers receive loans at reduced interest rates, easing their financial burden and promoting agricultural investment.

Indirect Subsidies:

1. Power Subsidies: Many states provide free or heavily subsidized electricity for agricultural use, particularly for irrigation.

2. Water Subsidies: Irrigation water is often provided at minimal or no cost to farmers.

3. Tax Exemptions: Agricultural income is exempt from income tax in India.

4. Subsidized Equipment: The government offers subsidies on agricultural machinery and equipment to promote mechanization.

Issues Raised by WTO:

The WTO has raised several concerns regarding India’s agricultural subsidies:

1. Exceeding Subsidy Limits: India’s subsidies are alleged to exceed the 10% limit of the value of agricultural production set by WTO rules.

2. Classification Debate: There’s contention over the classification of subsidies into “Green Box” (non-trade distorting) and “Amber Box” (trade-distorting) categories.

3. Public Stockholding: WTO members have raised concerns about India’s public stockholding program for food security, arguing it could distort global markets.

4. Market Distortion: Some countries argue that India’s subsidies lead to overproduction and affect global agricultural trade.

India’s Position:

• India maintains that its subsidies are essential for food security and protecting the livelihoods of millions of small and marginal farmers.
• The country argues for a permanent solution to the public stockholding issue, emphasizing the right to food security.
• India seeks revisions to WTO rules to account for the specific needs of developing countries.

Conclusion:
India’s agricultural subsidies remain crucial for food security and farmer welfare, despite WTO concerns. Balancing domestic needs with global trade obligations requires nuanced policy-making and continued international negotiations to find sustainable solutions.