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: 

Agriculture and Subsidies in India

Agriculture is the primary source of livelihood for about 58% of India’s population. To support this sector, the Indian government provides several subsidies, both direct and indirect. These subsidies are aimed at reducing the cost of production, ensuring reasonable prices for consumers, and maintaining food security. However, these subsidies have been a bone of contention at the World Trade Organization (WTO), raising several issues.

Direct Subsidies

1. Fertilizer Subsidy: The Indian government provides a subsidy on fertilizers to reduce the cost for farmers. However, this has led to the overuse of certain fertilizers, affecting soil health.

2. Power and Irrigation Subsidies: Farmers are provided with free or subsidized electricity for irrigation. This has led to the over-exploitation of groundwater resources.

3. Food Subsidy: The government procures food grains from farmers at a Minimum Support Price (MSP) and distributes it at subsidized rates through the Public Distribution System (PDS).

4. Pradhan Mantri Kisan Samman Nidhi (PM-KISAN): Under this scheme, the government provides a direct income support of Rs. 6,000 per year to small and marginal farmers.

Indirect Subsidies

1. Crop Insurance: The Pradhan Mantri Fasal Bima Yojana (PMFBY) provides insurance cover to farmers against crop failure due to natural calamities, pests, and diseases.

2. Agricultural Credit: The government provides agricultural loans at subsidized interest rates to farmers.

3. Subsidy on Agricultural Equipment: The government provides subsidies on the purchase of agricultural equipment to promote mechanization.

4. Subsidy on Seeds: High-quality seeds are provided to farmers at subsidized rates to improve crop yield.

Issues Raised by WTO

1. Trade Distortion: WTO argues that these subsidies distort trade by giving an unfair advantage to Indian farmers over their counterparts in other countries.

2. Green Box Subsidies: WTO allows subsidies that do not distort trade, known as Green Box subsidies. However, India’s MSP and food subsidies are considered Amber Box subsidies, which are trade-distorting.

3. Aggregate Measurement of Support (AMS): WTO has set a limit on the AMS, which is the total trade-distorting support. India has been accused of breaching this limit.

4. Food Security: India’s food stockholding for security purposes has also been questioned by the WTO, arguing that it distorts trade.

Conclusion

While agricultural subsidies are crucial for supporting India’s vast agrarian population, they need to be designed and implemented in a manner that does not distort trade and is in line with global norms. There is also a need to shift from price-support based subsidies to income-support based subsidies. The government should also focus on sustainable farming practices to ensure the long-term viability of the agriculture sector.