Farm subsidy
“If one looks at the overall public resources being spent on agriculture, one is amazed that threefourths of the resources go primarily as subsidies on things like fertiliser, power and irrigation, while only one-fourth goes into investment,” said economist Uma Kapila, editor of ‘Indian Economy Since Independence’.
The Narendra Modi government on July 4 announced hikes in federally fixed minimum support prices (MSP) for 13 summer crops. The hikes ranged from about 11.3% for paddy to 52.5% for ragi. Since markets aren’t willing to offer that price, the government has promised to bankroll farmers’ incomes by pumping more subsidies to buy the produce. According to Gulati, arbitrary increases in MSP by completely “ignoring the demand side” only accentuates farm crisis. It’s akin to making a product – say a car or an apartment – 50 times more expensive, without willing buyers.
Over a 33-year period, public capital formation in agriculture, a measure of investments, has declined from 3.9% of agricultural-GDP in 1980-81 to 2.2% in 2014-15. However, input subsidies on fertilisers, power, water and crop insurance have shot up from 2.8% to 8% during this period.
Adjusted for inflation, fertiliser subsidy rose 15 times over 30 years, irrigation subsidy rose six times, while electricity subsidy has increased 20 times.
“Substantial investment must only come from government. Complementary, smaller investment can and does come from farmers. The perception around the NDA government initially was that it would bring bold, substantial agricultural reforms. We don’t see that,” said economist S Mohana Kumar of the Jaipurbased Institute of Development Studies.
According to Prof Nilabja Ghosh of the Institute for Economic Growth, Delhi University, governments realise the pitfalls, but prefer to keep subsidies high for political gains. “It made sense to offer subsidies to spark a green revolution. We haven’t got out of the trap because of their political importance. If you withdraw subsides, inputs get expensive and farmers agitate. That’s why the transition from a subsidy regime to investment regime has got stuck,” she said.