Need for Recasting the Farm Subsidies : Daily Current Affairs

Date: 07/01/2023

Relevance: GS-2: Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.

Relevance: GS-3: Issues related to Direct and Indirect Farm Subsidies and Minimum Support Prices.

Key Phrases: Market Distorting, Non-Market Distorting Support, PM Fasal Bima Yojana, Crop Insurance, Premium, Covered Area, Delay in settlement, Parliamentary Standing Committee, PM-KISAN, Food and Fertiliser Subsidy.

Context:

India is spending huge sums of money on incentivising and subsidizing farmers to adopt new technology and also increase incomes.
In this context, Market distorting subsidies share a greater part as compared to non market distorting subsidies. This is a major concern, India is facing right now.

Key Highlights:

The Pradhan Mantri Fasal Bima Yojana is the world’s largest crop insurance scheme in terms of farmer registrations.

Market Distorting vs Non-Market Distorting Support:

The support given by governments to the agricultural sector can be categorized as-
- Market Distorting Support
- Non-Market Distorting Support
Market distortion support means any interference that significantly affects prices of inputs and outputs.
- For example, fertilizer subsidies, procurement of paddy.
Non-market distortion support means any interference that is meant for enhancement of the productive capacity of farmers and does not negatively affect the price of inputs and outputs.
- For example, Income support initiatives are like direct money transfer schemes such as PM-KISAN, under which ₹6,000 is transferred to each farmer-household, and crop insurance premium subsidies under PMFBY (Pradhan Mantri Fasal Bima Yojana), wherein farmers’ production risks are covered.
- Public investments in irrigation and market infrastructure development and expenditure on agricultural research and development are also considered non-market distorting.

PM Fasal Bima Yojana

About
- This scheme was launched in February 2016.
- Under the scheme, all farmers including sharecroppers and tenant farmers growing “notified crops” in the “notified areas” are eligible for coverage.
Features
- Under the provisions of PMFBY, farmers pay a premium of 2% of the sum insured for all food grains and oilseeds crops of Kharif; 1.5% for all food grains and oilseeds crops of Rabi; and 5% for all horticultural crops.
- In the initial scheme, the difference between actuarial premium rate and the rate of insurance premium payable by farmers, which is called the rate of normal premium subsidy, was to be shared equally between the Centre and states.
  - In February 2020, the Centre decided to restrict its premium subsidy to 30% for unirrigated areas and 25% for irrigated areas.
- Initially, the scheme was compulsory for loanee farmers; in February 2020, the Centre revised it to make it optional for all farmers.
- Immediate intimation (within 72 hours) by the insured farmer to Insurance Company through “Crop Insurance App” or any available channel of reporting.

Major Issues:

Reverse Trend in India
- Over the years, all governments should try to gradually shift to non-market-distorting support as it helps boost farmers’ incomes without affecting market prices.
  - However, in India, the general trend is the reverse.
  - Year after year, the budget allocated to market-distorting fertilizer subsidies and free power for agriculture has been increasing, while investment support for R&D in agriculture and market infrastructure is dwindling.
Rising Burden of Market Distorting Subsidies
- There is a huge rise in market distorting support.
  - For example, this year’s fertilizer subsidy is likely to cross ₹2.76-lakh crore, food subsidy is expected to exceed ₹2.37-lakh crore and huge subsidies are given to provide free power for pumping water into farmland.
- The support to non-market distorting schemes like PM-KISAN (₹70,000 crore), PMFBY (₹15,500 crore) and agricultural research and development budget (₹8,513 crore) is much lower.
Overuse of Fertilizers
- This disproportionately higher share of market-distorting subsidies is leading to over-use of fertilizers and enhanced focus on water-intensive crops like paddy and wheat rather than on diversified and more nutritive crops like pulses and oilseeds.
Mono-cropping of Few Crops
- Procurement at MSP is confined to only paddy and wheat with the neglect of other crops like pulses, oilseeds and millets, which is leading to mono-cropping of paddy and wheat, with less area allocated to other crops.
  - This is resulting in surplus production of a few crops like paddy, wheat and sugarcane, while there’s a huge shortage of pulses and oilseeds.
Over-use of Urea
- Currently the government is giving a subsidy of ₹2,183 for each 45-kg bag of urea to keep its retail price at ₹267; the government imports urea at ₹2,450/bag from international markets.
  - This is leading to over-use of urea and under-utilization of various micro-nutrients.
Less Amount for Public Investments
- As far as the food and agriculture sector is concerned, a major part of the budget is allocated for giving doles (subsidies) rather than focus on investment.
  - There are three big-ticket items that dominate and take almost away Rs 5 lakh crore from the Budget- Food subsidy, Fertilizer subsidy and PM KISAN.

Conclusion:

Therefore, it is a need of hour to put an end to higher Budget allocations for market-distorting fertilizer and power subsidies, and enhance allocation to non-market distorting subsidies/support like direct money transfer to farmers/income support.
- This will help in increasing farmers’ income, make them purchase farm inputs based on requirements and enhance their productive capacity.

Source: Business Line

Mains Question:

Q. What are the issues with the market distorting support given by the government to the farmers? Also, suggest measures to address these issues. (250 Words)