Debate Over Subsidies to Agriculture

Subsidy is a discount provided by the government to the general public in order to supply critical items at accessible costs across the country. The amount that the government grants to a unit/industry that sells subsidised items to the public is known as a Subsidy. Subsidies are a type of government non-planned spending in which the cost of the subsidy is significantly lower than the actual cost of production.

In the context of agriculture, subsidy means that the government provides farmers with inputs required for agriculture at a price lower than the price prevailing in the market. Simply put, a subsidy is a financial assistance given to the producers by the government, so it can accomplish its social welfare objectives. 

Debate Over Subsidies to Agriculture

During the initial phases of the Green Revolution, farmers thought that the new technology was risky. Therefore, the government had to grant subsidies to the farmers as an incentive for them to adopt new HYV technology. However, as time has passed, economists are debating over the subsidy amount granted by the government. Some of them are in favour of the grant of subsidies, while others are against it.

In Favour:

The economists who are in favour of subsidies believe that the government should continue to grant agricultural subsidies because, in India, farming is a risky business. Also, the majority of farmers are so poor that without subsidies they will not be able to afford the input required for farming. Therefore, if the government eliminates subsidies, it will increase the income inequality between the rich and poor farmers, which will ultimately violate the government’s final goal of equity. 

Hence, it can be said that in India subsidies for poor and small farmers is essential as it enables them to use modern agricultural techniques. Besides, it is vital to take the required steps to make sure that the benefits of subsidies are only enjoyed by the poor farmers and not the big farmers and fertiliser industry. 

Against:

The economists who are against subsidies believe that as the government grants subsidies to poor farmers as an incentive for them to adopt new HYV technology, then it should phase out subsidies once the new technology is widely accepted, and the purpose of granting subsidies has been fulfilled. They also believe that the poor and small farmers are not getting benefits from subsidies as the benefits from the substantial amount of subsidy go to big farmers and the fertiliser industry. 

Hence, it is suggested not to continue granting subsidies to the poor and small farmers as the target group (small and poor farmers) does not gain benefits from them. Besides, subsidies are a huge burden on the finances of the government.

Observation:

There are two observations made in context with the subsidies granted to the poor and small farmers.

1. Prices as Signals:

Price of goods acts as a signal about their availability. In simple terms, when a good becomes scarce, its price usually increases. Now the people who use this good will have to make an efficient decision regarding its use based on the new price. For example, during COVID, the price of infrared thermometers, masks, sanitisers, etc., increased because the supply of these goods was short, and they became scarce with respect to their demand. 

2. Subsidies may result in Wasteful use of Resources:

Some economists believe that because of subsidies it is difficult to indicate the supply of a good with its price. For example, when electricity is provided to the farmers at are subsidised rate or for free, then they will use it wastefully without thinking about it becoming scarce in the future. Also, when water is supplied to the farmers for free or at a subsidised rate, then they will cultivate water-intensive crops on their land even though the water resources are scarce in their region, resulting in the depletion of the already scarce resources. Therefore, to make sure that the farmers cultivate crops which is suitable to their region, it is necessary to price water to reflect its scarcity. Similarly, subsidies provided for fertilisers and pesticides result in the overuse of resources which can prove to be harmful to the environment.

Hence, in conclusion, it can be said that subsidies provide incentives to people for the wasteful use of resources.