2023 GS3 Answer

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.

Question from UPSC Mains 2023 GS3 Paper

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.

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