Subsidies a hidden culprit in India’s farm crisis?

NEWDELHI: EVERY ~10L INVESTED IN FARM RESEARCH PULLED 328 PEOPLE OUT OF POVERTY; 26 PEOPLE WERE HELPED BY THE SAME AMOUNT SPENT ON SUBSIDIES

Are Indian farmers paying a price for sweeping agricultural input subsidies they enjoyed for decades and which they have taken for granted, from virtually free power to extremely lowpriced fertilisers? Data from a landmark new research seem to suggest so.

The research, by economist Ashok Gulati and his colleagues of the think tank Indian Council for Research on International Economic Relations (ICRIER), claims that governments have raised inefficient input subsidies over the years, which, in turn, have virtually turned the tap off for new investment. This has had the effect of choking off agricultural growth and slowing poverty reduction, it adds.

Elementary economics states that growth is a function of investments. While agriculture tends to swing from one problem to the other, farmers are currently battling a politically challenging spell of poor returns. These problems are related to longstanding trends of a heavily subsidised agriculture sector, according to empirical evidence from the research study titled ‘Supporting Indian Farms the Smart Way’.

For instance, while unsustainable power and fertiliser subsidies have led to higher production, lack of investment in market infrastructure has meant farmers often suffer huge losses.

Since capital, or resources, are always limited, rising subsidies have squeezed out funds available for capital formation, an economist’s jargon for investment. This is a key reason for keeping agricultural growth and, consequently, farm incomes low, the study argues.