The article tries to argue, why the agricultural subsidies in India are inefficient and should be abolished, citing various reasons and arguments, like that of the highly subsidised irrigation which is not encouraging any further investments in the sector. It also tries to explain how the subsidy is being inefficiently allocated to the various states in India, to different crops and how the firms are profiting out of a considerable share of the agricultural subsidies. It also explains if the agricultural subsidies are distributed justly among the various economic layers or not. Where with suitable and valid arguments it establishes how the removal of subsidies and bringing perfect competition into the input markets, actually benefits the sector and the government, and how it would help in the redistribution and reallocation of the resources among the varied population of the agricultural sector.
THE INTRODUCTION
The effect and impact of the agricultural subsidy has long since been debated and argued upon in the macro economic scenario of the Indian Agriculture. The varied subsidies in agriculture range from input subsidies on fertilisers, water, equipments and power to the output subsidies which minimum price guarantee on the agricultural output produce. The Union Budget ever since the inception of the Independent India has kept a considerable portion aside for the agricultural sector and its subsidies, where the Union Budget for the financial year 2017-18 allocated around 1.88 Lakh crores, which was a 23% increase to that of the preceding financial year’s allocation. Where India inspite of experiencing a prospective growth in the service sectors has still decided to allocate if not “Invest” a greater sum to the agricultural sector whose growth rate has stagnated over the period. But, it is also to be considered that 57% of the population are dependent on Agriculture and allied activities(Census,2011), where the aide given to them cannot be discontinued at the same time. So, how sustainable are the agricultural subsidies in India?And should the agricultural subsidies be discontinued?
WHY SHOULD THE AGRICULTURAL SUBSIDIES GO?
The Unsustainable Water Subsidy policy and rates
The financial returns on the irrigational projects have deteriorated overtime, where the receipts received through the irrigation haven’t been sustainable enough to cover the operations and maintenance costs (Gulati and Sharma,1995), where the funds allocated for the Irrigation have been used to cover these maintenance and operations costs, instead of furthering the Investments in the sector. The main reasons for this is due to the very low and a ludicrous water rates where at the subsidised rate, the price of irrigating an acre of paddy costs around 100 rupees, but the estimated irrigation cost is around 600 rupees for an acre of paddy(Nagaraj et al, 2003). To tackle this the Vaidyanathan Committee(1992) recommended to raise the irrigation costs by six times the current rates, so as to cover at least the O and M rates, which also would cover 1% of the capital costs, where the committee also recommended to discontinue the policy of crop-specific pricing and introduce a rate structure which would involve the volumetric pricing of the canal water (Vaidyanathan, A, 1994).
Misplaced Subsidy Beneficiary
The argument of the subsidy beneficiary can take place in Three levels, first being where, the benefits are divided between the agriculturists belonging to different economic and financial levels. The second one being, The benefits divided between the Farmers and the Firms from which the inputs are bought from, and the third one being where the Agricultural Subsidies divided among the various states and the crops in India (Sharma and Thaker, 2010).
According to the estimates (Gulati and Narayanan, 2003) during the period of 2000-01, only around 67.5% of the benefits of the subsidies went to the farmers and the remaining went to the firms and industries producing the input for the agricultural sector, where the sole target beneficiary in the agricultural subsidies were the farmers, but inefficient price control led to giving away 32.5% of the subsidy benefits to the firms.
The agricultural subsidies in India experiences an highly skewed distribution of subsidies among the states, where the top five states ,ie., Uttar Pradesh, Andhra Pradesh, Maharashtra, Haryana and Punjab consumed a major share of 54.5%in 2007-08 (FAI,2008), where the rest 22 states shared the remainder 45.5% of the subsidy benefits. A more clearer perspective of the Skewed unequal distribution of the fertiliser subsidies among the states can be obtained through the fertiliser subsidy provided per hectare of the total cropped area (Sharma and Thaker, 2010), where states like Punjab, Andhra Pradesh, Haryana and Tamil Nadu had fertiliser subsidies which were more than Rs.3300 per hectare area and ten states had less fertiliser consumption than the national average of Rs.2083, the lowest being Rajasthan with Rs. 824 fertiliser subsidy per hectare area of the total cropped area. Also, among the crops which receive the highest benefits, Rice and Wheat have turned out to be the biggest beneficiaries among the crops produced as they constitute 52.5% of the total share in subsidy, when more realistically compared with the per hectare fertiliser use the top four crops i.e., Paddy, Wheat, Sugarcane and Cotton consume 2/3rd of the fertiliser subsidy, where their per hectare fertiliser usage in KG is 120, 131, 240 and 111 respectively, when compared to the national average of 93 kgs per hectare, where other crops consume only a meagre portion of the fertiliser subsidies. (FAI 2008).
The distribution of subsidies among the different farm sizes is the only factor among the ones discussed, which shows a positive and a progressive impact of the fertiliser subsidies in India, When the average subsidy was compared among the varied farm sizes, the average subsidy per hectare of the cropped area was the highest among the marginal farmers with an average subsidised rate of Rs.916.2 per hectare and the lowest among the large scale farmers with an average of 406 rupees per hectare. Also, the the Marginal and small farms shared 51.3% of the total subsidy benefits, whereas the large farms shared 6.3% of the total subsidy benefits, where the distribution of subsidy shows a positive impact on the distribution of benefits among the lower economic groups in the agricultural sector.
CONCLUSION AND ANALYSIS
The Primary reason why the agricultural subsidies should be abolished can be sourced from the argument that the subsidies are only meant to be short term incentives given either to initiate a certain form of a trend, activity or a process in the economy [Krishna 1967], and if continued as a long term policy, would only eat into the Annual Budget, where the same could have been used to further investments in the economy. The subsidies in the long run would encourage lobbies and pressure groups which would try to seek and protect their interests through the allocation of the subsidies, with continued protection would only become harder to remove or reduce the subsidies [Gulati & Kalra,1992]. Also, the subsidies lead to inefficient choice of cropping, inefficient allocation of resources and unnecessary trade barriers, which can be avoided if the subsidies are abolished and the input markets are brought under perfect competition.
From the above arguments it is very much evident that the abolition of Subsidy on irrigation would lead to a greater boost in the investment in the irrigation sector, which would mean that more areas could be brought under irrigation and would lead to an increase in the cropped area, which increases the output and quantity exported. it would also curb the unjust use of the subsidies by few states with stronger lobbying capacity to that of the weaker ones, where again perfect competition would curb the state wise lobbying for agricultural subsidies. Where the market forces and equilibrium are the sole efficient tools to efficiently allocate these resources. Hence, this is why the agricultural subsidies should be discontinued and should policies should be made to successively abolish them.