Agriculture Subsidy in India & Fiscal Sustainability

Syllabus: GS3/Agriculture; Economy

Context

• India has maintained relatively stable retail prices of key agricultural inputs such as urea and diesel through extensive support and agricultural subsidies, despite increasing international crude oil and fertilizer prices amid Middle East conflict.

About Agricultural Subsidy

• It refers to financial assistance provided by the government to farmers to reduce input costs, stabilize incomes, and ensure food security.
• India’s subsidy framework emerged strongly during the Green Revolution to incentivize fertilizer use, irrigation, and high-yield crop cultivation.

Major Agricultural Subsidies in India

• Fertilizer Subsidy: India is among the largest fertilizer subsidising countries globally. Subsidy mainly supports Urea, DAP (Diammonium Phosphate), Potassic and phosphatic fertilizers.
  • Nutrient Based Subsidy (NBS) is applicable for phosphatic and potassic fertilizers, and subsidy linked to nutrient content. Farmers pay only a fraction of actual market cost.
• Food Subsidy: Implemented through the Public Distribution System (PDS) and procurement by the Food Corporation of India (FCI).
  • Ensures food security and MSP-based procurement.
  • Key Components: MSP procurement, PDS, and PM Garib Kalyan Anna Yojana integration.
  • Around 80 crore beneficiaries under NFSA.
• Power Subsidy: Free or highly subsidised electricity for irrigation pumps in many states.
  • States collectively spend over ₹1.5–2 lakh crore annually on power subsidies.
  • Major beneficiary states are Punjab, Haryana, Telangana, Andhra Pradesh, and Tamil Nadu.
• Irrigation Subsidy: Low water charges for canal irrigation and support for micro-irrigation.
• Income Support: It provides direct income support, and reduces dependence solely on price subsidies.
• Minimum Support Price (MSP) Support: MSP announced for 22 mandated crops and sugarcane.
  • Wheat and paddy account for majority procurement.
  • The MSP system disproportionately benefits a few states like Punjab, Haryana, and Telangana.

Importance of Agri-Subsidy

• Ensuring Food Security: Subsidies played a major role in transforming India from a food-deficit nation to a food-surplus economy.
• Supporting Farmer Incomes: Small and marginal farmers, who constitute nearly 86% of landholdings, benefit from lower input costs.
• Stabilising Agricultural Production: Subsidies help maintain crop production and rural stability by insulating farmers from global price volatility.
• Promoting Rural Economy: Agricultural support stimulates rural demand, employment, and allied sectors.
• Strategic Importance: Stable agricultural production reduces dependence on imports and strengthens national food sovereignty.

Key Concerns, Issues and Challenges in Agricultural Subsidies

• Rising Fiscal Burden: India’s fertilizer subsidy bill has risen sharply in recent years due to increasing global prices of natural gas and fertilizers.
  • Fertilizer subsidy expenditure crossed several lakh crore rupees in recent years. Such expenditure limits fiscal space for infrastructure, health, and education.
• Distorted Cropping Patterns: Subsidies and MSP procurement heavily favour water-intensive crops such as wheat and paddy, especially in Punjab and Haryana.
  • It has led to groundwater depletion, soil degradation, and declining crop diversification.
• Environmental Concerns: Excessive use of subsidised urea has caused soil nutrient imbalance, declining soil fertility, and increased greenhouse gas emissions.
  • The Economic Survey has repeatedly highlighted the overuse of nitrogenous fertilizers.
• Inefficient Targeting: Large farmers often capture a disproportionate share of subsidies due to higher land ownership and input consumption.
  • Many tenant farmers and landless cultivators remain excluded.
• Delayed Structural Reforms: Repeal of the three farm laws has made governments cautious regarding agricultural reforms.
  • As a result, market reforms remain incomplete, private investment is limited, and agricultural productivity growth remains moderate.
• Dependence on Subsidy Culture: Excessive reliance on subsidies can discourage innovation, diversification, and efficient resource use.

Key Efforts and Government Initiatives

• PM-KISAN Scheme: Direct income transfer of ₹6,000 annually to farmers through DBT.
• Neem-Coated Urea: Introduced to reduce diversion and improve nitrogen-use efficiency.
• Direct Benefit Transfer (DBT) in Fertilizers: Implemented to improve transparency and reduce leakages.
• PM-KUSUM Scheme: Promotes solar pumps and renewable energy in agriculture.
• Pradhan Mantri Krishi Sinchayee Yojana (PMKSY): It focuses on ‘Per Drop More Crop’, micro-irrigation, and water-use efficiency.
  • It expands drip and sprinkler irrigation systems, and increases irrigation coverage.
• National Mission for Sustainable Agriculture (NMSA): Encourages climate-resilient and resource-efficient farming.
• National Agriculture Market (e-NAM): Aims to integrate agricultural markets digitally and improve price discovery.

Way Forward: Strengthening the Agri-Subsidy Ecosystem

• Rationalising Subsidies: Subsidies should gradually shift from product-based support to income-based support while protecting vulnerable farmers.
  • A balanced transition can reduce fiscal stress without harming farmer welfare.
• Promoting Crop Diversification: Policies should incentivise pulses, oilseeds, and millets instead of excessive wheat-paddy cultivation.
  • The declaration of millets as ‘Shree Anna’ is a step in this direction.
• Encouraging Sustainable Agriculture: Support for organic farming, natural farming, precision agriculture, and micro-irrigation can improve productivity while reducing ecological stress.
• Better Targeting through Technology: Use of Aadhaar-linked databases, land records digitisation, and DBT systems can improve subsidy efficiency and reduce leakages.
• Strengthening Agricultural Markets: Reforms should focus on storage infrastructure, Farmer Producer Organisations (FPOs), agri-logistics, value chains and food processing.
• Balancing Welfare and Fiscal Prudence: Long-term sustainability requires balancing welfare measures with fiscal discipline and productivity-enhancing reforms while subsidies remain essential for rural stability.

Source: IE