QUES . What are the direct and indirect subsidies provided to farm sector in India? Discuss the issues raised by the World Trade Organization(WTP) in relation to agricultural subsidies. UPSC 2023 GS MAINS PAPER 3 250 words 15 marks

HINTS:

An agriculture subsidy is a governmental financial support paid to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities. Agriculture subsidies act as an incentive to promote agricultural development and as an instrument of stimulating agricultural production and attaining self-sufficiency.

Direct and indirect subsidies provided to farm sector in India

Direct subsidies

֍ The government announces a MSP for certain agricultural commodities, which is the price at which the government will purchase these commodities from farmers.

֍ The government provides subsidies on fertilizers to make them affordable for farmers. This ensures access to essential nutrients for crop growth. Subsidy on fertilizer amounted to Rs 50000 Cr (FY 2023-24).

֍ APEDA offers logistical and non-tariff support services that facilitate the export promotion of agricultural products.

֍ The government provides a subsidy on agricultural loans, which reduces the cost of borrowing for farmers. Farmers can access agricultural credit at lower interest rates through subsidized lending programs like Kisan Credit Cards (KCC).

֍ Subsides in the form of farm loan waiver. Farm loans are loans taken from the banks by the farmers for agriculture requisites and production. In a farm loan waiver scheme, the Centre or the state Government repays the loan to the banks on behalf of the farmers, simply by using public money collected in the form of taxes.

֍ Direct payment schemes like PM Kisan Samman Nidhi (PM-KISAN).

Indirect subsidies

֍ The Public Distribution System ensures the availability of essential food items to consumers at affordable prices. It indirectly supports farmers by stabilizing demand. The distribution of subsidized food grains through the PDS benefits both consumers and farmers.

֍ Subsidies are allocated for the construction and maintenance of rural infrastructure like roads, cold storage facilities, and market yards. For Example, subsidised loans for setting up cold storage units.

֍ Many states, including Punjab and Haryana, offer free or subsidized electricity for agricultural purposes under their respective state schemes. This enables farmers to operate tube wells and irrigation pumps without incurring high energy costs.

֍ The government subsidizes crop insurance premiums to protect farmers from crop losses due to natural disasters. For example, Pradhan Mantri Fasal Bima Yojana (PMFBY) provides subsidised financial protection to farmers in case of crop failure due to natural calamities.

֍ Investments in agricultural research and extension services indirectly benefit farmers by improving farming techniques and technologies.

֍ Other indirect subsidies: Irrigation subsidy, Seed subsidy, etc.

Issues raised at WTO in relation to agricultural subsidies

֍ Subsidies can act as trade barriers, making it difficult for unsubsidized foreign producers to compete in the market where subsidised goods are sold. India’s subsidies for agricultural exports, such as for sugar, have faced criticism from WTO members like Brazil and Australia for distorting global prices. They argue that these subsidies give Indian producers an unfair advantage in the international market.

֍ Subsidies, particularly price support measures like MSP, have been under scrutiny for distorting global agricultural markets by leading to overproduction and surplus dumping. For example, in 2019, United States filed a dispute against India at the WTO, alleging that India’s MSP for wheat and rice was a trade-distorting subsidy.

֍ India’s public stockholding program, aimed at ensuring food security for its population, has been a contentious issue in the context of international trade. Food Corporation of India (FCI) buys large quantities of wheat and rice, which the WTO claims can distort market prices.

֍ India, as a WTO member, must adhere to the Agreement on Agriculture (AoA) rules, which set limits on the value of domestic support for agriculture. India’s procurement at MSP has, at times, exceeded these limits, leading to disputes and concerns among trading partners.

֍ WTO members must notify their agricultural subsidies to maintain transparency. India has faced criticism for delays and inconsistencies in its subsidy notifications.

֍ According to WTO norms, subsidies in the Amber Box should be reduced or eliminated. India argues that such subsidies are essential for its small-scale farmers. For example, the fertilizer subsidies fall under this category, which India maintains are critical for enhancing crop yields.

֍ India has relied on the Peace Clause, a WTO provision that temporarily shields it from legal action regarding its food security programs. This provision was used by India in 2020. However, this provision has been a subject of debate and negotiations within the WTO.

Global trade rules necessitate a balance between domestic priorities and international commitments. It’s imperative for India to navigate these complexities, ensuring both farmer welfare and adherence to global norms. On the other hand, international bodies such as the WTO should also take into account the developmental needs of emerging economies in tackling their unique challenges.