UNIVERSITY OF AGRICULTURAL SCIENCES, GKVK, BANGALORE

DEPARTMENT OF AGRICULTURAL ECONOMICS

Seminar report
On
Agricultural Subsidy in India: An Economic Overview

Submitted to,

Dr. G. M. Gaddi
Dr. Mahin Sharif
Seminar teachers

Submitted by,

Navyashree, B. M.
PAMB 0118
Sr. M. Sc. (Agri.)
Agricultural Economics

Major advisor,

Dr. K. B. Vedamurthy
Assistant Professor
Department of Dairy Business Management
Dairy Science College, KVAFSU, Hebbal Campus, Bengaluru-560065

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 CONTENTS

Sl. No Particulars Page No.

I Introduction 5
II Structure of Agricultural Subsidies 6-7
III World scenario 7-8
IV Agricultural Input Subsidies in India 8-11
V Fertilizer Sector 11-18
VI Power Sector 18-21
VII Indian Seed Sector 21-24
VIII Irrigation Sector 25-27
IX Credit Subsidy 27-30
X Output subsidy 30
XI Subsidy on agriculture machineries/ implements 31-32
XII Arguments for and Against of Agricultural Subsidies 32-33
XIII Subsidy syndrome in Indian Agriculture 34
XIV WTO and Indian Agriculture: 34-35
XV Case study 35-38
XVI Subsidies in India and implications for Agricultural development 38-40
XVII References 40-41

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 List of Tables

Table No. Particulars Page No.

1 Comparison of Subsidies to Agriculture across countries 7
2 Expenditure on Major Agricultural Subsidies 10
3 Division of Agricultural Subsidies Between the Centre and the States 10
4 Consumption of fertilizers in India 12
5 Fertilisers subsidy disbursement 13
6 Nutrient Based Subsidy for nutrients NPKS for the 2019-20 18
7 Electricity subsidy to agriculture in India 21
8 State-wise Release of Subsidy under Central Sector Scheme on 22-23
Assistance for Boosting Seed Production in Private Sector in India.
9 Scheme-wise Financial Assistance/Grants-in-Aid Provided to States for 24
Seed Production in India
10 Irrigation Subsidy in India 26
11 Target and Achievement of Agricultural Credit in India 29
12 Targets and Achievement of Agriculture Loan (Crop+Term Loan) 30
disbursed by RRBs and Co-operative banks in India
13 Subsidy for agriculture credit through interest subvention scheme 29-30
14 Commodity wise quantity procured at MSP in Kharif marketing season 31
during 2020-21
15 Land preparation equipments 32
16 Sowing and planting equipments 32
17 Inter cultivation equipments 33
18 Harvesting and threshing equipment 33
19 Input use pattern among SAC availed and non-availed farmers for cotton 35
production
20 Cost and return structure in SAC availed and non-availed farmers for 36
cotton production
21 Subsidies in India and implications for Agricultural development 39-40

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 List of Figures

Fig. No. Particulars Page No.

1 Structure of Agricultural Subsidies in India 7
2 Structure of Agricultural Input Subsidies in India 9
3 Fertilizer consumption in the world 11
4 Fertilisers subsidy disbursement (2005-06 to 2017-18) 13
5 Electricity Production in India from 2009-10 to 2020-21 20
6 Electricity subsidy to agriculture in India 21
7 Source of irrigation in India 25

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I. Introduction:

Agriculture sector is undoubtedly most important sector of Indian economy as it

provides employment to 42.6 per cent of people and food security of India revolves around this
sector. Its importance can be gauged by the fact that whenever there is fear of deficit monsoon,
whole of the population ranging from farmers, workers, businessmen, policy makers and even
foreign investors are caught into nervousness. Because of dependence of disproportionate
population on this sector, Indian economy can be still said to be an agrarian economy.

Subsidy is one of the powerful fiscal instruments, besides taxes and others (fee, duty),
by which the objective of growth and social justice may be achieved. Subsidy is necessary as
a production accelerating catalyst for those new inventions, which are socially desirable but
whose adoption needs huge capital and producers believe it to be risky investment.

A subsidy, often viewed as the converse of a tax, is an instrument of fiscal policy. It is

derived from the Latin word 'subsidium', a subsidy literally implies coming to assistance from
behind. The Oxford English Dictionary defines subsidy as "a sum of money granted by state
or a public body to help an industry or business keep the price of a commodity or service low".

Subsidy is a benefit given by the government to groups or individuals, usually in the

form of a cash payment or a tax reduction. The subsidy is typically given to remove some type
of burden, and it is often considered to be in the overall interest of the public.

The subsidies may be direct or indirect, cash or kind, general or particular, budgetary
or non-budgetary, etc. But their impact is practically visible on both the production and
distribution. The economic rationale of subsidies lies in incentivizing the producers to invest
in productive activities and increase production leading to high growth in national income and
obtaining desirable structure of production. "The social justification of subsidies lies in
reducing inters personal income inequalities and inters- regional development imbalances”.
The justification gets strengthened if the subsidies promote agricultural development besides
equitable distribution of income.

Farm subsidies form about two percent of India’s GDP. The total input subsidy per ha
forms 18.17% of the farm income per ha.The price support subsidy per ha forms 2.46% of the
farm income per ha and the total subsidy to farmers forms about 21% of their farm income.

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II. Structure of Agricultural Subsidies:

Agricultural subsidies in general are given in several forms to the people in the country.
Input subsidies are provided in the form of explicit and implicit input subsides. Subsidies given
for purchasing improved variety seeds, plant protection chemicals, agricultural implements and
so on fall under explicit input subsidies. Whereas, fertilizers subsidy falls under implicit
subsidy and these subsidies are hidden in nature. Output subsidy and food subsidy are also a
part of agricultural subsidies.

a) Input subsidies

i) Explicit Input Subsidies

Explicit input subsidies are payments made to the farmers to meet a part of the cost of
an input. These are in the nature of explicit payments made to the farmer. For example, subsidy
on improved or high yielding variety seeds, plant protection chemicals and equipments,
improved agricultural implements and supply of minikits containing seeds, fertilizers and plant
protection chemicals for certain crops are the explicit subsidies. Explicit subsidies have formed
only a small fraction of the development expenditure of Central/ State Governments.

ii) Implicit Input Subsidies

Implicit input subsidies are hidden in nature and it arises on account of the mechanics
of pricing of inputs. If inputs whose prices are administratively determined are priced low as
compared to their economic cost, it becomes a case of implicit subsidization. As far as the
farmer is concerned, he does not receive any direct payment but somebody in the economy
accounts for the difference. Ex: Fertilizers Subsidy.

b) Output Subsidies

Subsidization of agricultural sector through output pricing means that by a restrictive

trade policy, the product prices in the domestic market are maintained at levels higher than
those that would have prevailed in the absence of restrictions on trade. On the other hand, if
the trade policies have resulted in keeping the domestic prices lower than the corresponding
border reference price, the policies have taxed the agricultural sector. The border reference
price is the free on board prices in the case of exportables and cost, insurance and freight price
in the case of importables.

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c) Food Subsidies

This apart, there is an important subsidy linked to the agricultural sector and that is the
food subsidy. The twin policy of providing market support to the food grains producers and
supplying atleast a part of the requirement to consumers at reasonable prices, along with the
policy of maintaining a buffer- stock of required quantity for national food security, involved
cost in the form of meeting the differences between the economic cost and issue prices of food
grains. This is what is called the food subsidy and appears explicitly in the Union Budget.

Fig. 1: Structure of Agricultural Subsidies in India

Source: Satishkumar et al., 2020

III. World scenario:

Table 1: Comparison of Subsidies to Agriculture across countries

Country Subsidy per Per cent of Agriculture Population dependent

hectare (US $) subsidies to the total subsidy on agriculture (%)
EU 82 37 08
USA 32 26 05
Japan 35 72 04
China 30 34 24
South Africa 24 61 28
India 14 2.33 60
Note: EU- European Union, USA- United States of America

Source: Salunkhe and Deshmush, 2012

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 The above table 1 shows agriculture subsidies is a global phenomenon and it was more
in developed countries and less in developing countries. The per cent of agriculture subsidy to
the total subsidy was very low in India when compared to the other countries. But the
population dependent on agriculture was more in India, which was around 60 per cent.

IV. Agricultural Subsidies in India:

Subsidies on inputs have their root in the Green revolution. That time extensive
subsidies were given on Hybrid seeds, Fertilizers, pesticides etc. main aim of subsidies are two
– one is to keep cost of the food grains at minimum and avoiding food inflation, second is to
ensure the income security of the farmer. While this policy has helped a lot to secure food
sufficiency, yet it has many unintended negative impacts. It results in overuse of inputs as
inputs costs doesn’t represent adequate market costs, farmers are unable to respond to market
signals. They continue to use skewed mix of inputs as costs are borne by government.

Subsidies can be granted through distribution of inputs at the prices that are less than
the standard market price for these inputs. The magnitude of subsidies will therefore be equal
to the difference between the two prices for per unit of input distributed.

a) Fertilizer Subsidy

Distribution of cheap chemical or non-chemical fertilizers among the farmers. It

amounts to the difference between price paid to the manufacture of fertilizer (domestic or
foreign) and price received from farmers.

Fertilizer subsidy ensures cheap inputs to farmers, reasonable returns to manufacturers,

stability in fertilizer prices and availability of fertilizers to farmers. Fertilizer subsidies are
granted through lifting the tariff on the import of fertilizers, which otherwise would have been
imposed.

b) Power Subsidy

The electricity subsidies imply that the government charges low rates for the electricity
supplied to the farmers. Power is primarily used by farmers for irrigation purposes. It is the
difference between the cost of generating and distributing electricity to the farmers and the
price received from farmers.

The state electricity board (SEB) either generates the power themselves or purchases
it from other producers such as National Thermal Power Corporation (NTPC) and other State

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Electricity Boards (SEBs). Power subsidy acts as an incentive to the farmer to invest in pump
sets, bore wells etc.

c) Irrigation Subsidy

Subsidies to the farmers which the government bears on account of providing proper
irrigation facilities. Irrigation subsidy is the difference between operating and maintaining cost
of irrigation infrastructure in the state and irrigation charges recovered from the farmers. This
may work through provision of public goods such as canals, dams which the government
constructs and charges low prices or no prices at all for their use from the farmers. It may also
be through cheap private irrigation equipments such as pump sets.

d) Credit Subsidy

It is the difference between interest charged from farmers, and actual cost of providing
credit, plus other costs such as writing-off of bad loans. Availability of credit is the major
problem for poor farmers. To carry out the production activities they approach the local money
lenders.

Taking advantage of the helplessness of the poor farmers the lenders charges high rates
of interest. Many times even the farmers who have some collateral cannot avail loans because
banking institution are largely urban based and many a time they do not indulge in agricultural
credit operation, which is considered to be risky.

To tackle these problems, the government can provide more banking operations in rural
areas-which will advance agricultural loans, the interest rates can be maintained low through
subsidization schemes and the term of credits can be relaxed for the poor.

Fig. 2: Structure of Agricultural Input Subsidies in India

Source: Satishkumar et al.,2020

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 Table 2: Expenditure on Major Agricultural Subsidies (Rs. in Crores)

Name Source Year Magnitude

Fertilizer Union Budget 2017/18 70,000

Power Dharmadhikari et.al (2018) based on 2015/16 91,000

Power Finance Corporation data

Credit Union Budget 2017/18 20,000

Irrigation Central Water Commission (2017) 2013/14 17,500

Crop Insurance Union Budget 2018/19 13,000

Price Support Author’s estimate 2014/15-2016/17 24,000

Total (without inflating 2,35,500

to 2017/18 price levels)
Source: XV Finance Commission report,2019

Table 2 shows the bird eye view of the total amount of government spending on the
agricultural subsidy. Every year it is accounting for about 2,35,500 crore rupees which is spend
by the centre and state almost at equal proportion.

Table 3: Division of Agricultural Subsidies Between the Centre and the States

Central Government subsidies Amount (Rs. Crores)

Fertilizer 70000
Credit 20000
Crop insurance 6500
Price support 24000
Sub Total 120500
State Government subsidies Amount
Power 91000
Irrigation 17500
Crop insurance 6500
Sub Total 115000
Total 235000
Source: XV Finance Commission report,2019

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 Table 3 shows that subsidies on fertilisers, credit and price support are announced by
the centre whereas the subsidies on power, irrigation is announced by the state government.
The subsides on crop insurance are equally shared by centre and the state.

Why relying on input rather than output subsidy?

• Product non-specific

• Less production distorting

• Less bias

• Encourages capital investment

• Multiple market failures in developing countries

Sector wise subsidies in India:

V. Fertilizer sector:

Fertilizer subsidy

Fertilizer subsidies are given to ensure low-cost inputs to farmers, reasonable returns
to manufacturer, stability in fertilizer prices and availability of fertilizers to farmers. Fertilizers
subsidy are granted through lifting the tariff on the import of fertilizers, which otherwise would
have been imposed.

Fertilizer consumption in the world

Others China
26% 27%

Paksistan
2%
Indonesia India
3% 14%
Brazil
8%
EU USA
9% 11%

China India USA EU Brazil Indonesia Paksistan Others

Source: International Fertilizer Association, 2019

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 Fig. 3: Fertilizer consumption in the world
Table 4: Consumption of fertilizers in India (LMT)
Year Urea DAP MOP Complex Nitrogen Phosphate Potash Total
(N) (P) (K) (N+P+K)
2002–03 184.93 54.73 19.12 48.10 104.74 40.19 16.01 160.94
2003–04 197.67 56.24 18.41 47.57 110.77 41.24 15.98 167.99
2004–05 206.65 62.56 24.06 55.08 117.13 46.24 20.61 183.98
2005–06 222.97 67.64 27.31 66.94 127.23 52.04 24.13 203.40
2006–07 243.37 73.81 25.86 67.99 137.73 55.43 23.35 216.51
2007-08 259.63 74.97 28.80 65.70 144.19 55.15 26.36 225.70
2008-09 266.49 92.31 40.78 68.05 150.90 65.06 33.13 249.09
2009-10 266.74 104.92 46.34 80.25 155.80 72.74 36.32 264.86
2010-11 281.12 108.70 39.31 97.64 165.58 80.50 35.14 281.22
2011-12 295.65 101.91 30.29 103.95 173.00 79.14 25.75 277.90
2012-13 300.02 91.54 22.11 75.27 168.21 66.53 20.62 255.36
2013-14 306.00 73.57 22.80 72.64 167.50 56.33 20.99 244.82
2014-15 306.10 76.26 28.53 82.78 169.46 60.98 25.32 255.76
2015-16 306.35 91.07 24.67 88.21 173.72 69.79 24.02 267.53
2016-17 296.14 89.64 28.63 84.14 167.35 67.05 25.08 259.49
2017-18 298.14 92.94 31.58 85.96 169.58 68.54 27.79 265.91
2018-19 313.98 92.08 29.53 90.88 171.40 69.75 28.40 269.40
2019-20 312.55 94.08 31.25 91.77 176.37 69.98 26.40 272.28
CAGR 2.68 2.51 2.44 3.58** 2.65 2.88 2.76 2.72
Note: **-Significant at 5% level

Source: Fertilizer association of India, 2020 and DES

The compound growth rates were analysed for the period of 2002-03 to 2019-20
(Table 2). The rate of growth of Consumption of fertilizers in India (LMT) increasing at the
rate of 2.72 per cent per annum during the study period.

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Table 5: Fertilizer subsidy disbursement (Rs. crores)

Year Urea subsidy P & K fertilizer Total

2005-06 12793.45 6596.19 19389.64
2006-07 17721.43 10298.12 28019.55
2007-08 26385.36 16933.80 43319.16
2008-09 33939.92 65554.79 99494.71
2009-10 24580.23 39452.06 64032.29
2010-11 24336.68 41500.00 65836.68
2011-12 37683.00 36107.94 73790.94
2012-13 40016.00 30576.10 70592.10
2013-14 41853.30 29426.86 71280.16
2014-15 54400.01 20667.30 75280.00
2015-16 54600.00 21937.56 76537.56
2016-17 51256.59 18843.42 70100.01
2017-18 46980.00 22237.00 69217.00
CAGR (%) 9.39 9.68** 9.53
Note: **-Significant at 5% level

Source: Report on study of fertilizer systems in India, Ministry of chemical and fertilizers,

2019

The table 3 shows the compound growth rates for the period of 2005-06 to 2017-18.
The rate of growth in total fertilizers subsidies disbursement shown positive growth rate of 9.53
per cent per annum during the study period. The rate of growth of decontrolled P&K fertilizers
also shown positive growth rate of 9.68 per cent. Similarly, the growth rate of subsidy on urea
also showed positive growth of 9.39 per cent per annum.

Fertilizer subsidy disbursement ( Rs. crores)

120000
100000
80000
60000
40000
20000
0

Urea subsidy P & K fertilizer Total

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Fig. 4: Fertilizer subsidy disbursement ( Rs. crores)
Source: Report on study of fertilizer systems in India, Ministry of chemical and fertilizers,
2019

Fertilizer Policy in India

For sustained agricultural growth and to promote balanced nutrient application, it is

imperative that fertilizers are made available to farmers at affordable prices. With this
objective, urea being the only controlled fertilizer, is sold at statutory notified uniform sale
price, and decontrolled Phosphatic and Potassic fertilizes are sold at indicative maximum retail
prices (MRPs).

The problems faced by the manufactures in earning a reasonable return on their

investment with reference to controlled prices, are mitigated by providing support under the
New Pricing Scheme for Urea units and the concession Scheme for decontrolled Phosphatic
and Potassic fertilizers.

The statutorily notified sale price and indicative MRP is generally less than the cost of
production of the irrespective manufacturing unit. The difference between the cost of
production and the selling price/MRP is paid as subsidy/concession to manufacturers. As the
consumer prices of both indigenous and imported fertilizers are fixed uniformly, financial
support is also given on imported urea and decontrolled Phosphatic and Potassic fertilizers.

Historical Background

Since independence, Government of India has been regulating sale, price and quality of
fertilizers. For this purpose, Government of India has passed Fertilizer Control Order (FCO)
under Essential Commodity Act (EC Act) in the year 1957. In order to regulate the distribution
of fertilizer, Movement Control Order was passed in 1973. No subsidy was paid on Fertilizers
till 1977 except Potash for which subsidy was paid only for a year in 1977.

On the recommendation of the Maratha Committee, the Government had introduced

Retention Price Scheme (RPS) for nitrogenous fertilizers in November 1977. Subsequently,
RPS was extended to phosphatic and other complex fertilizers from February 1979 and to
Single Super Phosphate from May 1982, which continued up to 1991. Later on, subsidy was
also extended to imported phosphatic and potassic (P&K) fertilizers.

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 In early 1990s, the country was facing mounting fiscal deficit and there was an
impending danger of foreign exchange crisis. In order to contain the subsidy burden,
Government announced an increase of 40 per cent in the price of fertilizers in July, 1991. Some
of the fertilizers which were under the subsidy scheme were decontrolled. Subsequently,
apprehending low consumption of fertilizer due to increase in prices and consequently, low
agriculture productivity, Government rolled back 10 per cent of increase in Urea price.

In December 1991, Government set up a Joint Parliamentary Committee (JPC) on

Fertilizer Pricing to review the existing methods of computation of retention prices for different
manufactures of fertilizers and to suggest measures for reducing fertilizers prices without
straining the exchequer. JPC submitted its report on 20th August 1992. The main conclusions
and recommendations of the Committee were that the rise in subsidy was mainly due to
increase in the cost of imported fertilizers, de-valuation of rupee in July 1991 and the stagnant
farm gate prices from 1980 to 1991. The Committee did not favour total decontrolled of
fertilizers but recommended decontrol of import based phosphatic and Potassic fertilizers along
with a marginal 10 per cent reduction in the consumer price of Urea.

Concession Scheme for P&K Fertilizers

 Fearing imbalance fertilization of the soil, unaffordability by farmers due to increase in

Phosphatic and Potassic fertilizer prices.
 Government of India announced ad hoc Concession Scheme for Phosphatic and
Potassic fertilizers from Rabi 1992 to cushion the impact of price hike with a view to
encourage balanced fertilizer consumption.
 Based on the recommendations of Joint Parliamentary Committee, Government of
India decontrolled all Phosphatic and Potassic (P&K) fertilizers namely DAP, MOP,
NPK complex fertilizers and SSP with effect from 25th August 1992 which were under
Retention Price Scheme (RPS) since 1977 except Urea which continued to remain
under RPS. Since subsidy was retained on the Nitrogenous fertilizers (Urea) while
phosphatic fertilizers were decontrolled, the prices of phosphatic fertilizers in the
market became comparatively high. As a result, production and consumption of
nitrogenous fertilizers increased and consumption of P&K fertilizers decreased. This
led to severe imbalance in consumption of nitrogenous, phosphatic and Potassic
fertilizers. Fearing imbalance fertilization of the soil, unaffordability by farmers due to
increase in phosphatic and potassic fertilizer prices, Government of India announced

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 ad hoc Concession Scheme for phosphatic and potassic fertilizers from Rabi 1992 to
cushion the impact of price hike with a view to encourage balanced fertilizer
consumption.
 The basic purpose/objective of the Concession Scheme for P&K fertilizers has been to
provide P&K fertilizers to the farmers at affordable prices so as to increase the food
productivity in the country through balanced use of fertilizers. The concession scheme
was also aimed at ensuring reasonable rate of return on the investments made by the
entrepreneurs in the fertilizer sector.
 During 1997-98, Department of Agriculture & Cooperation also started indicating an
all India uniform Maximum Retail Price (MRP) for DAP/NPK/MOP. The
responsibility of indicating MRP in respect of SSP rested with the State Governments.
The Special Freight Subsidy Reimbursement Scheme was also introduced in 1997 for
supply of fertilizers in the difficult areas of J&K and North-eastern States, which
continued up to 31.3.2008. The total delivered cost of fertilizers being invariably higher
than the MRP indicated by the Government, the difference in the delivered price of
fertilizers at the farm gate and the MRP was compensated by the Government as
subsidy to the manufacturers/importers.

Impact of Concession Scheme

 The MRP of P&K fertilizers were much lower than its delivered cost. This led to
increase in consumption of fertilizers during the last three decades and consequently
increase in food grain production within the country. However, it was observed in last
few years that the marginal response of agricultural productivity to additional fertilizer
usage in the country had fallen sharply, leading to near stagnation in agricultural
productivity and consequently agricultural production. The disproportionate NPK
application, rising multi-nutrient deficiency and lack of application of organic manures
leading to reduction in carbon content of the soil, was attributed to the stagnating
agricultural productivity.
 The subsidy outgo of Government also increased exponentially by 500 per cent during
the past five years (2005-06 to 2009-10) under the Concession Scheme with about 94
per cent of the increase caused by increase in international prices of fertilizers and
fertilizer inputs, and only 6 per cent attributable to increase in consumption.
 It was, thus, observed that over the last few years the product based subsidy regime
(erstwhile concession scheme) had been proving to be a losing proposition for all the

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 stake holders viz., farmers, industry and the Government. Accordingly, considering all
the issues relating to agriculture productivity, balanced fertilization and growth of
indigenous fertilizer industry, competiveness amongst the fertilizer companies and to
overcome the deficiency of concession scheme, the Government introduced Nutrient
Based Subsidy (NBS) Policy for P&K fertilizers.

Nutrient Based Subsidy (NBS) Policy (April 2010)

Inter-Ministerial Committee (IMC) - Fixed rate of subsidy (in Rs. per Kg basis) is
announced on nutrients namely Nitrogen (N), Phosphate (P), Potash (K) and Sulphur (S) by
the Government on annual basis.

The Department of fertilizers, Government of India is implemented NBS Policy for

P&K fertilizers. Under the NBS Policy, a fixed rate of subsidy (in Rs. per Kg basis) is
announced on nutrients namely Nitrogen (N), Phosphate (P), Potash (K) and Sulphur (S) by
the Government on annual basis.

The Inter-Ministerial Committee (IMC) recommends per nutrient subsidy for ‘N’, ‘P’,
‘K’ and ‘S’ before the start of the financial year for decision by the Government (Department
of Fertilizers). The IMC recommends a per tonne additional subsidy on fortified subsidized
fertilizers carrying secondary (other than ‘S’) and micro- nutrients. The Committee also
recommends inclusion of new fertilizers under the subsidy regime based on application of
manufacturers/ importers and its need appraisal by the Indian Council for Agricultural
Research (ICAR), for decision by the Government.

The per Kg subsidy rates on the nutrient N, P, K, S is converted into per tonne subsidy
on the various P&K fertilizers covered under NBS Policy. Any variant of the fertilizers covered
under the subsidy scheme with micronutrients namely Boron and Zinc, is eligible for a separate
per tonne subsidy to encourage their application along with primary nutrients.

At present 22 grades of P&K fertilizers namely DAP, MAP, TSP, MOP, Ammonium
Sulphate, SSP and 16 grades of NPKS complex fertilizers are covered under the NBS Policy.
Under the NBS regime, MRP of P&K fertilizers has been left open and fertilizer
manufacturers/marketers are allowed to fix the MRP at reasonable rates.

The distribution and movement of fertilizers along with import of finished fertilizers,
fertilizer inputs and production by indigenous units is monitored through the online web based

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“Fertilizer Monitoring System (FMS)” as was being done under the Concession Scheme for
P&K fertilizers.

Import of all the subsidized P&K fertilizers, including complex fertilizers has been
placed under Open General License (OGL). NBS is available for imported complex fertilizers
also except Ammonium Sulphate. The NBS is passed on to the farmers through the fertilizer
industry. The payment of NBS to the manufacturers/importers of P&K fertilizers is released as
per the procedure notified by the Department.

The NBS for nutrients NPKS for the 2019-20 is presented in the table 4. The table
indicates that the nutrient based subsidy on Nitrogen is Rs. 18.78 per kg during 2019-20.
Similarly the increase in subsidy was observed in Phosphate (Rs. 26.28 to 45.32 per kg), and
Sulphur (Rs. 1.79 to 2.37 per kg), Similarly the decrease in subsidy was observed in Potash
(Rs. 24.49 to 10.11 per kg) respectively

Table 6: Subsidized prices of N,P,K,S under NBS scheme

Nutrients Price/ kg
‘N’ (Nitrogen) 18.78
‘P’ (Phosphate) 45.32
‘K’ (Potash) 10.11
‘S’ (Sulphur) 2.37
Source: Ministry of Chemicals and Fertilizers, GoI

VI. Power Sector:

Power is considered to be a core industry as it facilitates development across various

sectors of the Indian economy, such as manufacturing, agriculture, commercial enterprises and
railways. Keeping this into account, Govt. of India right from the inception of the first five year
plan period has given special emphasis for its development. In the pre-independence era, the
power supply was mainly in the hands of Private Sector that too restricted to the urban area.
After independence, the Electricity (supply) Act, 1948, was enacted to facilitate faster power
sector development and State Electricity Boards (SEBs) were set up in all the states in bringing
out systematic growth of power supply industry all over the country. A number of multipurpose
hydro projects and installation of thermal and nuclear stations were taken up and power
generation activity started increasing significantly. Intervention of the Central Government in
development of generation led to the formation of National Thermal Power Corporation

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(NTPC) and National Hydro Power Corporation (NHPC), which gave a fillip to the growth of
power sector in the country. The setting up of Nuclear Power Corporation and Power Grid
Corporation of India gave further boost to the power development programme.

What Are Power Subsidies?

In most states in India, DISCOMs sell electricity at a subsidized price to certain

consumers— that is, a price below the cost of supply. Most often, but not always, this is focused
on residential and agricultural consumers. Subsidies come in several forms:

1. Direct tariff subsidies: this is mostly made up of annual payments from state
governments to state DISCOMs to help cover the cost of selling electricity at low prices.

2. Cross-subsidies: this is when DISCOM charges some consumers (often commercial

and industrial users) higher prices to help cover subsidized prices for others.

3. Other indirect subsidies: In addition to cross-subsidies, the central and state

governments may provide other indirect assistance, such as loans to DISCOMs at below market
rates.

4. Grants and bailouts: Any costs that are not covered by sales or subsidies will accrue
over time as losses. Such losses don’t just derive from pricing—they can result from all sorts
of DISCOM challenges, such as inefficient power purchase planning and procurement or poor
billing and collection. In the short term, they are paid through inadequate investment in
infrastructure, which compromises the quality of supply and can further entrench inefficiencies.
In the medium term, subsidies in the form of capital grants may be provided to help DISCOMs
build infrastructure, and every few years, losses are typically addressed by large bailout
packages.

Who Decides Subsidy Policy and How Are Subsidies Paid?

Every year, DISCOMs estimate what tariffs should be and approach regulators with a
tariff petition. Usually, tariffs differ by consumer category (domestic, agriculture, commercial,
industry, and railways) and by blocks of consumption volume, with prices getting higher as
consumers use more electricity. At the beginning of the year, states are supposed to announce
a lump-sum direct subsidy for DISCOMs. This is called the “subsidy booked.” If it has been
announced, DISCOMs factor it into the petition. The petition is reviewed by the electricity

19
regulatory commission, who may make changes. Once finished, the commission publishes the
final rates as part of the “tariff order.”

According to Section 65 of the Electricity Act 2003, subsidies should be paid in

advance. In practice, they are more often paid later. The actual payment is called the “subsidy
released,” and in some states, it is much lower than the subsidy booked. When funds are
delayed or incomplete, DISCOMs have to resort to short-term borrowing at high interest costs.
At the end of the year, a review is conducted to check actual costs and revenues. If subsidies
were too high or low, they are “trued-up” and adjusted for that year or the ensuing year.

Different Categories of Consumer of Electricity

• Six major categories of electricity consumers are:

(i) Domestic

(ii) Agriculture(irrigation)

(iii) Outside-State

(iv) Commercial

(v) Industrial and

(vi) Railway traction

The tariff-rates for the first three categories are less than the average per unit cost of supplying
electricity while that for the last three categories are more than the average cost. Thus, the first
set of consumers are cross-subsidised. The subsidy rates differ for the three subsidised
categories of consumers.

Why Is There a Financial Sustainability Concern?

The International Energy Agency (IEA, 2020) projects that India’s electricity demand
will triple by 2040. This will push up subsidy costs because there will be more and more
subsidized consumption. At the same time, consumers who pay cross-subsidies may buy less
from DISCOMs, as they purchase power competitively through an open access provision and
even build their own generation capacity for cheaper electricity. DISCOM finances are at a
crisis point: as of September 2020, DISCOMs across India owed INR 125,349 crore (USD 17
billion) to power generators (Ministry of Power, 2020b). To date, there has been a worrying
tendency to just leave DISCOMs to absorb losses because it is the least politically challenging

20
approach. But a DISCOM in financial distress is a problem for everyone, particularly the poor
and marginalized, who will face the most problems from limited hours of supply and voltage
fluctuations.

Fig. 5: Electricity Production in India (Billion Units (BU) from 2009-10 to 2020-21)

Source: Ministry of power 2021

The electricity production in India during 2009-10 is 805.4 billion units and it has

increased to 1381.9 billion units in 2020-21. The electricity production increasing at a growth

rate of 6.25 per cent (Fig 5).

Table 7: Electricity Subsidy to Agriculture in India

Year Subsidy(in crores)

2010-11 44738
2011-12 48661
2012-13 57901
2013-14 62053
2014-15 66989
2015-16 68437
2016-17 69538
CAGR 7.98**
Note: **-Significant at 5% level

Source: Ministry of Agriculture, GoI

The electricity subsidy in India during 2010-11 is 44738 crore rupees and it has

21
increased to 69538 crore rupees in the year 2016-17.

Fig 6: Electricity Subsidy to Agriculture in India (2010-11 to 2016-

2017) (Rs. Crores)
65000
60000
55000
50000
45000
40000
35000
30000
2010-11 2011-12 2012-13 2013-14

Subsidy(in crores)

Fig. 6: Electricity Subsidy to Agriculture in India (2010-11 to 2016-2017) (Rs. Crores)

Source: Ministry of Agriculture, GoI

Gross Subsidy on energy sales has been increasing over the years because of the policy
of some the States to provide electricity at subsidized rates to agriculture. The subsidy on
agriculture is increased from a level of Rs. 44738 crore in 2010-11 to Rs. 69538 crore in 2016-
17 which is showed in the Fig. 6.

VII. Indian Seed Sector:

Seed is the basic and most critical input for sustainable agriculture. The response of all other
inputs depends on quality of seeds to a large extent. It is estimated that the direct contribution
of quality seed alone to the total production is about 15 – 20 per cent depending upon the crop
and it can be further raised up to 45 per cent with efficient management of other inputs. The
developments in the seed industry in India, particularly in the last 30 years, are very significant.

Table 8: State-wise Release of Subsidy under Central Sector Scheme on Assistance for
Boosting Seed Production in Private Sector in India (Rs. in Lakh)

States/UTs 2015-2016 2016-2017 2017-2018 2018-2019

Andhra Pradesh 19.00 1.80 0.00 18.55
Telangana 0.00 0.00 0.00 45.00
Bihar 0.00 0.00 0.00 0.00
Chhattisgarh 1.92 1.20 8.77 50.00
Gujarat 95.37 75.10 151.09 190.00

22
 Haryana 10.77 0.00 0.00 0.00
Karnataka 4.63 156.10 0.00 0.00
Madhya Pradesh 48.32 0.00 44.82 600.00
Maharashtra 147.58 116.33 156.44 956.20
Odisha 99.00 136.57 0.00 146.00
Rajasthan 1380.53 760.00 524.98 0.00
Tamil Nadu 62.98 77.79 107.04 0.00
Uttar Pradesh 0.21 8.45 5.35 200.22
West Bengal 15.33 0.00 0.00 750.00
Assam 0.00 0.00 0.00 105.00
Jammu and Kashmir 0.00 1.00 0.00 0.00
Jharkhand 0.00 2.66 0.00 62.50
Nagaland 4.92 3.32 0.00 0.00
Tripura 18.00 2.00 0.00 0.00
Manipur 4.98 0.00 0.00 0.00
Sikkim 0.00 0.00 0.50 0.00
Uttarakhand 1.59 0.00 1.47 0.00
India 1915.13 1342.32 1000.46 3123.47
Source: Ministry of Agriculture, GoI

The Indian seed programme largely adheres to the limited generations’ system for

seed multiplication in a phased manner. The system recognizes three generations namely

breeder, foundation and certified seeds and provides adequate safeguards for quality

assurance in the seed multiplication chain to maintain the purity of the variety as it flows

from the breeder to the farmer.

Major Indian Seed Improvement Programmes

Assistance for Boosting Seed Production in the Private Sector

 Capital subsidy is provided at the rate of 25 per cent of the project cost subject to a
maximum limit of Rs. 25.00 lakh per unit on seed infrastructure development.
 Private Companies, individual entrepreneurs, self-help groups, seed co-operatives and
partnership farms are eligible for subsidy.

23
 The assistance is for creation of infrastructure facilities relating to seed cleaning,
grading, processing, seed treating, packaging and storage units as well as for seed
testing facilities.
 National Seed Corporation is the nodal agency for implementation and monitoring of
this component.
a) Seed Village Scheme
 To upgrade the quality of farmer-saved seed, which is about 80-85 % of the total
seed used for crop production programme, financial assistance is provided for
distribution of foundation/certified seed at 50 per cent cost of the seed of crops
for production of certified/quality seeds only and for training on seed production
and technology to the farmers.
b) Transport subsidy on Movement of seeds
 This component covers North-Eastern States including Sikkim, Jammu &
Kashmir, Himachal Pradesh, Uttaranchal and Hill Areas of West Bengal. The
component provides for (a) 100% reimbursement of difference between rail and
road transportation cost is allowed for the movement of seeds produced outside
the State and (b) the actual cost, restricted to maximum limit of Rs. 60 per
quintal whichever is less for the movement of seed within the State from State
capital / district Headquarters to sale outlets / sale counters.
c) Sub-Mission for Seed and Planting Material (SMSP)
 SMSP will cover the entire gamut of seed production chain, from production of
nucleus seed to supply of certified seeds to the farmers, to provide support for
creation of infrastructure conducive for development of the seed sector, support
to the public seed producing organisations for improving their capacity and
quality of seed production, create dedicated seed bank to meet unforeseen
circumstances of natural calamities, etc.
d) National Food Security Mission (NFSM)
National Food Security Mission (NFSM) is a Central Scheme of GOI launched in 2007
for 5 years to increase production and productivity of wheat, rice and pulses on a
sustainable basis so as to ensure food security of the country. Under this scheme also
assistance is given for seed production.
e) Rashtriya Krishi Vikas Yojana (RKVY)

24
 Assistance can be provided for making available certified/HYV seeds to farmers;
production of breeder seed; purchase of breeder seed from institutions such as ICAR,
public sector seed corporations, production of foundation seed; production of certified
seed; seed treatment; Farmers Field Schools at demonstration sites; training of farmers,
etc.
f) National Mission on Oilseeds and Oil Palm (NMOOP)
Under this scheme also assistance is given for the seed production.
g) Mission for Integrated Development of Horticulture (MIDH)
A Centrally Sponsored Scheme of MIDH has been launched for the holistic
development of horticulture in the country during XII plan. The scheme, which has
taken take off from 2014-15, integrates the ongoing schemes of National Horticulture
Mission, Horticulture Mission for North East & Himalayan States, National Bamboo
Mission, National Horticulture Board, Coconut Development Board and Central
Institute for Horticulture, Nagaland. The scheme wise subsidy /financial assistance
given for seed production in India were presented in Table 7.

Table 9: Scheme-wise Financial Assistance/Grants-in-Aid Provided to States for Seed

Production in India (Rs. Crores)

Year SMSP NFSM RKVY NMOOP MIDH

2018-19 313.20 1956.02 3247.64 456.81 -
2019-20 380.13 2173.84 3496.61 332.92 1960.60
2020-21 378.77 1628.65 3494.84 332.92 1782.00
Note:

SMSP: Sub-Mission for Seed and Planting Material

NFSM: National Food Security Mission

RKVY: Rashtriya Krishi Vikas Yojana

NMOOP: National Mission on Oilseeds and Oil Palm

MIDH: Mission for Integrated Development of Horticulture

Source: Ministry of Agriculture, GoI

25
VIII. Irrigation Sector:

Assessing the scale of irrigation subsidies is a major challenge. A variety of different

sources hold information and data; there is also a lack of clear incentives for stakeholders to
gather the necessary data for accurate subsidy estimation and accounting. Data are held in a
variety of formats and often for a wide variety of irrigation projects. There is also a wide range
of actors present within the water supply system, which can complicate data recording and
organization.

Others
11%
Wells
16% Tubewells
46%
Tanks
3%
Canals
24%

Tubewells Canals Tanks Wells Others

Fig. 7: Sources of Irrigation in India (2018-19)

Source: Ministry of Water Resources

Irrigation Subsidy

 Irrigation subsidy is the difference between operating and maintaining cost of

irrigation infrastructure and irrigation charges recovered from the farmers.
 Assessing the scale of irrigation subsidies is a major challenge.
 Data are held in a variety of formats and often for a wide variety of irrigation
projects.
 There is also a wide range of actors present within the water supply system,
which can complicate data recording and organization.

26
Table 10: Irrigation Subsidy in India (Rs. In Crores)

Year Irrigation subsidy

2014-15 5447.49
2015-16 5300.19
2016-17 5706.38
2017-18 5447.49
2018-19 3645.00
2019-20 5600.38
Source: Centre for monitoring Indian economy 2020

The irrigation subsidy in India during 2014-15 is 5447.49 crore rupees and it has

increased to 5600.38 crore rupees in 2019-20.

Prime Minister Krishi Sinchayee Yojana (PMKSY, 1st July,2015)

Vision- Extending the coverage of irrigation ‘Har Khet ko pani’ and improving water use
efficiency “per drop More crop”.

Focused manner with end to end solution on source creation, distribution, management,
field application and extension activities.

Government of India is committed to accord high priority to water conservation and

its management. To this effect Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) has been
formulated with the vision of extending the coverage of irrigation ‘Har Khet ko pani’ and
improving water use efficiency ‘More crop per drop' in a focused manner with end to end
solution on source creation, distribution, management, field application and extension
activities. The Cabinet Committee on Economic Affairs chaired by Hon’ble Prime Minister
has accorded approval of Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) in its meeting
held on 1st July, 2015.

PMKSY has been formulated amalgamating ongoing schemes viz. Accelerated

Irrigation Benefit Programme (AIBP) of the Ministry of Water Resources, River Development
& Ganga Rejuvenation (MoWR,RD&GR), Integrated Watershed Management Programme
(IWMP) of Department of Land Resources (DoLR) and the On Farm Water Management
(OFWM) of Department of Agriculture and Cooperation (DAC). PMKSY has been approved
for implementation across the country with an outlay of Rs. 50,000 crore in five years. For
2015-16, an outlay of Rs.5300 crore has been made which includes Rs. 1800 crore for DAC;

27
Rs. 1500 crore for DoLR; Rs. 2000 crore for MoWR(Rs. 1000 crore for AIBP; Rs. 1000 crores
for PMKSY).

PMKSY has been formulated amalgamating ongoing schemes viz.

1. Accelerated Irrigation Benefit Programme (AIBP) of the Ministry of Water

Resources, River Development & Ganga Rejuvenation (MoWR,RD&GR)
2. Integrated Watershed Management Programme (IWMP) of Department of Land
Resources
3. The On Farm Water Management (OFWM) of Department of Agriculture and
Cooperation (DAC), PMKSY was valid till March, 2021.
4. Its extension for the period 2021-22 to 2025-26 has been approved by Government
of India, with an overall outlay of Rs. 93,068.56 crore (central assistance of Rs.
37,454 crore, debt servicing to NABARD for Rs. 20,434.56 crore and an outlay for
Rs. 35,180 crore by the State Governments towards State share).

IX. Credit Subsidy:

 Credit Subsidy is the difference between interest charged from farmers, and actual cost
of providing credit, plus other costs such as write-offs bad loans.

Government Interest Subvention Scheme for Crop Loan (2019-20)

Farmers will get short-term crop loans of up to Rs 3 lakh at a subsidised interest rate
of 4 per cent this fiscal 2019-20, provided they repay in time, or else a higher rate of 7 per cent
will be charged. The Central Government will provide interest subvention of 5 per cent per
annum to all farmers for short term crop loan up to one year for loan up to Rs 3 lakh borrowed
by them during the year 2019-20. Farmers will thus have to effectively pay only 4 per cent as
interest.

In case farmers do not repay the short term crop loan in time they would be eligible for
interest subvention of 2 per cent as against 5 per cent available above," said an official
statement issued after the Cabinet meeting. The subvention scheme is applicable for all farmers
availing short-term crop loans up to Rs 3 lakh for one year. Interest subvention scheme is for
public and private sector banks, in addition to cooperative banks, regional rural banks and
NABARD for providing short term crop loan to farmers.

28
 Further, in order to give relief to small and marginal farmers who would have to borrow
at 9 per cent for the post harvest storage of their produce, the government has approved an
interest subvention of 2 per cent. This means the effective interest rate is 7 per cent. Also, "to
provide relief to the farmers affected by natural calamities, the interest subvention of 2 per cent
will be provided to banks for the first year on the restructured amount," the release added.
Government has set an agricultural credit target for banks at Rs 9 lakh crore for the current
fiscal, up from Rs 8.5 lakh crore 2019-20. The interest subvention scheme was earlier
implemented by the Finance Ministry. It was transferred to the Agriculture Ministry the year
2016.

The percentage achievement of target is more than 100 percent in all the years. The
agricultural loan (Crop+trem) disbursed by RRBs and Co-operative banks in India is given in
the below Table

Table 11: Target and Achievement of Agricultural Credit Flow in India (Rs. In Crore)

Year Target Achievement % Achievement of target

2010-11 375000 468291 124.87
2011-12 475000 511029 107.58
2012-13 575000 607376 105.63
2013-14 700000 730123 104.30
2014-15 800000 845328 105.67
2015-16 850000 915510 107.71
2016-17 900000 1065756 118.42
2017-18 1000000 1162617 116.26
2018-19 1100000 1256830 114.06
2019-20 1350000 1392729 103.16
CAGR 13.56* 13.29*
Note: *- Significant at 1% level

Source: Ministry of Finance, Govt. of India.

Target and achievement of agricultural credit in India (2010-11 to 2019-20) is given in

the table 11. The percentage achievement of target is more than 100 percent in all the years.
And there is significant growth in the credit flow over the years.

29
 Table 12: Targets and Achievements of Flow of Agricultural Credit by Commercial,
Cooperative and Regional Rural Banks in India (Rs. (in Crore))

Year Commercial Banks Cooperative Banks Regional Rural Banks

Target Achiev %Achieve Target Achiev %Achieve Target Achieve %Achie
e ment of e ment of ment vement
ment target ment target of target
355000 368616 103.84 69500 87963 126.57 50500 54450 107.82
- 2013 - 2012 - 2011 -
2012

420000 432491 102.97 84000 111203 132.38 71000 63681 89.69

2013

475000 119964 25.26 125000 509005 407.20 100000 82652 82.65

2014

540000 604376 111.92 140000 138470 98.91 120000 102483 85.40

2020 - 2019 - 2018 - 2017 - 2016 - 2015 - 2014
2015

590000 604971 102.54 140000 153295 109.50 120000 119261 99.38

2016

625000 799781 127.96 150000 142758 95.17 125000 123216 98.57

2017

704000 871100 123.74 156000 150300 96.35 140000 141200 100.86

2018

792000 954823 120.56 165000 152340 92.33 143000 149667 104.66

2019

972000 106121 109.18 202500 149694 73.92 175500 162857 92.80

2020

5
108197 850543 78.61 225946 133976 59.30 192076 142603 74.24
2021

8
12.42 16.75 11.90 0.01 13.33 12.34
CAG
R

Source: Ministry of Agriculture & Farmers Welfare, Govt. of India. & Reserve Bank of India.

Table 12 shows that there is 100 percent target achievement of flows of Agricultural
Credit by Commercial, Cooperative and Regional Rural Banks in India. Although, the share of

30
cooperatives are decreasing over the years due to their failures in the recent years. And the
commercial banks are showing greater targets and achievements in crediting agriculture over
the years.

Table 13: Subsidy for Agricultural credit through Interest Subvention Scheme

Year Interest subvention of Prompt repayment of Govt. Allocation

short term loans upto 3 short term loans upto 3 (In Crores)
lakhs per annum (%) lakhs per annum (%)
2009-10 2 1 2,000
2010-11 1.5 2 3,600
2011-12 2 3 3,500
2012-13 2 3 5,600
2013-14 2 3 6,000
2014-15 2 3 9,800
2015-16 2 3 13,000
2016-17 2 3 15,000
2017-18 2 3 15,000
2018-19 2 3 15,000
2019-20 3 3 18,500
Source: Ministry of Agriculture & Farmers Welfare, Govt. of India. & Reserve Bank of India.

Table 13 shows that the credit flows to the agriculture is increasing over the years
through this interest subvention schemes and recently i.e., during 2019-20 the total amount of
18,500 crore rupees has been allocated under this scheme.

X. Output subsidies:

Output subsidies are the subsidies which are provided in the form of increased price to avoid
distress sale.

Ex.- Minimum support price.

31
Table 14: Commodity-wise Quantity Procured at Minimum Support Price (MSP) in
Kharif Marketing Season (KMS) in India 2020-21

Crops Quantity Procured (In MT) (Rs. in Crore)

Paddy 707590 133593
Cotton 482420 26719.51
Ragi 474098 1562.15
Groundnut 284030.22 1498.26
Bajra 361871 778.02
Maize 198829 367.73
Jowar 128088 338.15
Moong 13730.2 98.8
Tur 11004.46 66.03
Jute 713.5 2.99
Urad 137.16 0.82
Soyabean 3.69 0.01
Total 77055705.23 165025.46
Source: Ministry of Agriculture & Farmers Welfare, Govt. of India 2021

From the above given table, during the Kharif marketing year 2020-21, the total
quantity procured by the GOI is 77055705.23 Metric tonnes at a MSP of Rs. 165025.46 crore.

XI. Subsidy on agriculture machineries/ implements:

Total outlay of subsidies for agriculture machineries- 100 crores for 2021

Table 15: Land preparation equipment

Equipment Equipment cost Others(50%) SF, MF and WF

(in Rs.) Css @ 40% (50%)
State @ 10% Css@ 50%
Tractor 287000 75000 75000
Power tiller 199000 72500 72500
M B Plough 28200 14100 14100

32
 Rotovator 51520 25760 25760
Rotary tiller 110320 55160 55160
Disc plough 77000 21500 21500
Ridge cultivator 30000 15000 15000
Spring loaded cultivator 30500 15250 15250
Duck foot type cultivator 30000 15000 15000
Tractor drawn cage wheel 46000 23000 23000
Source: Ministry of Agriculture & Farmers Welfare, Govt. of India 2021

Table 16: Sowing and planting equipments

Equipments Equipment cost Others(50%) Css SF, MF and WF

(in Rs.) @ (50%) Css@ 50%
40% State @ 10%
Paddy planter 249500 100000 100000
Ridger 35000 17500 17500
Forrower 34435 17218 17218
Seed cum fertilizer drill 36500 18250 18250
Zero till drill 65100 32550 32550
Roto till drill 188000 94000 94000
Post hole digger 24000 12000 12000
Source: Ministry of Agriculture & Farmers Welfare, Govt. of India 2021

Table 17: Inter-cultivation equipments

Equipments Equipment cost Others(50%) SF, MF and WF

(in Rs.) Css @ 40% (50%)
State @ 10% Css@ 50%
Brush cutter 16022 8011 8011
Power weeder 50000 25000 25000
Sprayer 8960 4480 4480
Source: Ministry of Agriculture & Farmers Welfare, Govt. of India 2021

33
Table 18: Harvesting and threshing equipments.

Equipments Equipment cost Others(50%) Css @ 40% SF, MF and WF

(in Rs.) State @ 10% (50%) Css@ 50%
Multi crop thresher 150000 75000 75000
Ground digger 133500 66750 66750
with elevator
Thresher 178000 89000 89000
Source: Ministry of Agriculture & Farmers Welfare, Govt. of India 2021

In the above tables, the subsidies given to all kinds of machineries and implements are
given which is increasing over the years mainly to reduce drudgery and to improve the
mechanisation in our country.

XII. Arguments for and Against Agricultural Subsidies:

Arguments For:

Strengthen the resource poor farmers

Increase productivity and production
Increase income at farm level
The input subsidies have the opportunity to achieve food security
Social equity

Arguments Against:

Budget constraints and Inefficiency in production system- The majority of farmers in

India are resource poor on one hand it leads to heavy budget requirement from the
government on the other hand increases inefficiency in the production system.
Poor governance
Environmental pollution
Un-sustainability of agriculture system
Fertilizer and irrigation subsidies have widened regional disparities to some extent.
The maximum benefit of subsidization of inputs is reaped only by large farmers, who
possess the capacity to buy inputs at higher prices.

34
XIII: Subsidy syndrome in Indian Agriculture:

The economy-wide analysis of input subsidies in Indian agriculture reveals that subsidies
have outlived their aim and have become unsustainable. In order to release resources for higher
investments in the agricultural sector, large-scale price and institutional reforms are needed to
relieve the pressure of subsidies on the Exchequer.

Under the circumstances, it makes much sense to improve terms of trade for agriculture and
complement this by stepping up investment in agriculture through reduction in subsidies. The
increased investment in agriculture appears to be a better bargain than short-sighted measures
such as subsidies.

This is because of the fact that cultivable land in India is in short supply and raising productivity
per unit of cultivable area will require heavy investments in irrigation, rural infrastructure,
research and extension. Also, investments in basic infrastructure correct for regional
imbalances and promote greater equity at farm level, while subsidies tend to accentuate
inequality

XIV: WTO and Indian Agriculture:

 Food subsidy limit: According to current WTO rules, a member country’s food
subsidy bill should not breach 10% of the value of production based on the base price
of 1986-88, but India is seeking amendments in the formula to calculate the food
subsidy limit.(economictimes.indiatimes.com)
 Subsidy breach by India(Rice): The current standoff at WTO is over the different
methodologies adopted by the US and India to calculate agriculture subsidies. While
the US claims the MPS for rice in 2013-14 was as high as 77 per cent of the production
value and 65 per cent for wheat, India maintains that its market support for rice was as
low as 5.45 per cent and negative for wheat. (downtoearth.org.in)
 Sugar subsidy by India: The dispute settlement panel was established in 2019 after
Brazil, Australia, and Guatemala had complained to WTO’s Dispute Settlement Body
that the Fair and Remunerative Price (FRP), the minimum price that sugar mills must
pay sugarcane farmers, and the State Advised Price (SAP), which sugar mills in the
states must pay to their farmers for supplying sugarcane, were WTO-incompatible.
They had also characterized India’s sugar export promotion measures as violation of
AoA. (www.livemint.com)

35
  Peace clause for breaching the ceiling limit of 10%: India has for the third time
invoked the peace clause for exceeding the 10% ceiling on support it offered its rice
farmers. The country informed the WTO that the value of its rice production in 2020-
21 was $45.56 billion while it gave subsidies worth $6.9 billion, which comes out to
15.14% as against the permitted 10%.
 Cotton shocks: Given the crucial role of cotton in livelihood security, export earnings,
poverty reduction and farm income, a group of cotton-producing African countries —
Benin, Burkina Faso, Chad and Mali, dubbed Cotton-4, or C-4 — have been demanding
substantial reductions in cotton subsidies since 2003. The C-4 has consistently
highlighted in agriculture negotiations how the asymmetrical and biased WTO rules
have been ineffective in disciplining the US cotton subsidies. But it has not helped.
The current flexibility accorded to countries to provide agriculture support is
mainly determined based on subsidies prevailing during 1986-88. The higher the
subsidies provided during that time, more is the policy space for a country to support
its farmers now. Therefore, it was advantageous for countries to inflate their base
subsidy.

XV. Case study:

Impact of Subsidised Agriculture Credit (SAC) on redgram and cotton cultivation farmers in
Gulbarga district (Karnataka)

By

Chavan et al.

Introduction:

The subsidised agriculture credit regimes were implemented in Karnataka during

different points of time. April 2004, cooperative credit societies had provided crop loan at an
interest rate of 12.5 per cent. Under the present scheme, the PACS provide loans to farmers at
zero per cent rate of interest for a maximum amount of one lakh rupees, while commercial
banks and RRBs at three per cent rate of interest for a maximum amount of three lakh rupees.
The cheaper crop loan facility has played an equally significant role in enhancing the country’s
food grains production, which was 250.42 million tonnes in 2011-12. Hence, present study was
conducted with the objective to study the utilization pattern of subsidized agricultural credit by
farmers and to assess the impact of subsidized agricultural credit on farmer’s economy.

36
 Data and Methodology:

 The North-East Karnataka region was purposively selected for the study since it is also
the jurisdiction of UAS, Raichur. Multistage sampling procedure was adopted for the
selection of sample farmers.
 An equal number of 40 large farmers and 20 small farmers who had not availed
subsidized agricultural credit were randomly selected from each taluk. Thus the total
sample size consisted of 240 farmers. The data collected from primary sources were
subjected to statistical analysis through the technique was Student ‘t’ test.

Results:

Table 19: Input use pattern among SAC availed and non-availed farmers for cotton
production (Rs. / ac)

Percentage change
SAC SAC in availed farmers
Mean difference
availed farmers non availed farmers over non-availed
Particulars
farmers
Small Large Small Large
Small Large Small Large
farmers farmers farmers farmers
farmers farmers farmers farmers
(n=40) (n=20) (n=40) (n=20)
Seed 1864 2130 1826 2098 2.08 1.53 38 NS 32 NS
FYM 935 894 914 875 2.3 2.17 21 NS 19 NS
Fertilisers 1652 1912 1496 1551 10.43 9.59 156** 141**
Plant protection
chemicals 1768 1862 1683 1706 5.05 4.23 85** 76**
Labour use
Human labour 1795 1876 1749 1825 2.63 2.63 46 NS 52 NS
Machine labour 784 958 763 894 2.75 7.73 21NS 67*
Note: *Significant at five %level, **Significant at one %level, NS-Non-Significant

Input use pattern among SAC availed and non-availed cotton farmers are presented in
Table 19. It can be seen from the table that both small and large categories of farmers who had
availed SAC, incurred higher credit for purchase of inputs per acre. In case of fertilizers
purchase, it was 10.43 per cent and 9.59 per cent, plant protection chemicals 5.05 per cent and
25.30 per cent respectively by small and large categories of farmers. SAC availed small and
large farmers spent marginally higher amount than non-availed small and large farmers may
be with the intention of purchasing of good quality seeds, fertilisers and plant protection
chemicals in order to get higher yield and production. Thus, there existed statistically

37
 significant difference in purchase of fertilizers and plant protection chemicals among small and
large farmers. Among large farmers, the significant differences were observed in purchase of
fertilizers and plant protection chemicals and machine labour use. Whereas marginal difference
in case of seed, FYM and labour use when compared to non-availed farmers.

Table 20: Cost and return structure in SAC availed and non-availed farmers for cotton
production (Rs./ac)

Percentage
SAC change in
SAC
non availed availed farmers Mean difference
availed farmers
Particulars farmers over non-availed
farmers
Small Large Small Large
Small Large Small Large
farmers farmers farmers farmers
farmer farmer farmer farmer
(n=40) (n=20) (n=40) (n=20)
Average yield
4.55 5.14 4.24 4.76 7.31 7.98 0.31 0.38
(q/ac)
Average price
4218.25 4218.25 4204.32 4206.64 0.26 0.28 11.06 11.61
(Rs./q)
Cost of cultivation 384.97 601.89
8803.69 9563.57 8418.72 8961.68 4.57 6.72
(Rs./ac) ** **
Gross return 1353.6 1658.2
19179.98 21681.81 17826.32 20023.61 7.59 8.28
(Rs./ac) 6** 0**
Net return 968.69 1056.3
10376.29 12118.24 9407.60 11061.93 10.30 9.55
(Rs./ac) ** 1**
Note: *Significant at five %level, **Significant at one %level, NS-Non-Significant

The details of cost and return structure in the production of cotton under SAC availed
and non-availed farmers are depicted in Table 20. It is clear from the table that among SAC
availed small and large farmers, the average yield was found to be relatively higher by 7.31 per
cent and 7.98 per cent but mean difference was nonsignificant compared to non-availed small
and large farmers. On the other hand, the average price received was marginally higher (0.26%
and 0.28%) among SAC availed small and large farmers when compared to non-availed small
and large farmers. Hence, the gross returns obtained were found to be relatively higher (7.59%
and 8.28%) in comparison to non-availed small and large farmers. The cost of cultivation was
considerably higher by 4.57 per cent in small and 6.72 per cent in large categories of SAC
availed farmers when compared to non-availed small and large farmers. The net returns
obtained were found to be higher by 10.30 per cent and 9.55 per cent than that of non-availed
small and large farmers.

XVI. Subsidies in India and implications for Agricultural development:

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 The input subsides in India and their impact and implication for agricultural development
were presented in the table 17 below.
Table 21: Subsidies in India and implications for Agricultural development
Sl no Kind of subsidy
1 Fertilizer
2 Seed
Present context Possible Impact Implication
a. Intensive use of a. No sustainable a. Fixation of limit for
fertilizers among production fertilizer usage for every
major crops like paddy b. Soil health crop per hectare and
and wheat degradation supplying as per it
b. Routing Subsidized c. Reduced b. Subsidy for organic inputs
fertilizers for non- cultivation of c. Effective implementation
agril. purposes millets of soil health card scheme
and encouraging precision
farming
d. Controlling diversion of
subsidized fertilizer to non-
agricultural uses
a. High seed cost of a. Extinction of old a. Encouragement to
commercial crops germplasm of germplasm maintenance
b. non availability of cereals and millets b. High assistance to
improved millets b. Agrarian crisis genetical improvement
varieties c. low Productivity especially pulses
c. No support for old levels compared to c. Support mechanism to
and crop species at global level farmers who are not covered
verge of extinction by insurance if crop fails
d. No assistance if because of fault seed
germination or crop
fails because of fault
seed
e. Poor assistance to
genetic improvement
of crops especially
pulses
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3 Electricity Transportation and Agriculture claims a. Proper pricing of
distribution losses are to be third major electricity by measuring
also included in user of electricity quantum of usage
Agricultural b. Encourage Subsidy on
consumption non-conventional source of
power like solar, wind,
thermal etc…
4 Irrigation Inefficient use of Unsustainable use a. Pricing the canal water
surface and ground leads to Water b. Subsidy on ground water
water scarcity recharge mechanisms
5 Credit Poor awareness of Charge of higher a. Awareness about the
subvention schemes interest rates even scheme
for agriculture credit though they are b. Extending the scheme to
eligible under the dairy and other term
scheme facilities
6 Output a. Distress sales a. Hoarding and a. Improve marketing
b. Poor market inflation b. Obtaining stock statement
facilities b. Decrease in and its verification monthly
c. Too much price farmers share in
fluctuation consumer rupee

XVII. References:

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impact and persistence of these subsidies in India DRAFT.

CHAVAN, R., JOSHI, A. T., PATIL, S. S. AND HIREMATH, G. M., 2018, Comparative
growth of subsidised agriculture credit (SAC) in India with special reference to
Karnataka. Progress. agric., 18 (1): 62-65.

GULATI, A. AND SHARMA, A., 1995, Subsidy syndrome in Indian agriculture. Eco Polit
Wkly., 30 (39): 93-102.

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KUMAR, T. G., 2013, An economic assessment of structure and dynamics of fertilizer subsidy
in India. J. Econ. & Social Dev., 9 (2): 15-26.

MANKUNNUMMAL, A., 2022, Containing the fertilizer subsidy in India: an analysis of

subsidy containing strategies and its outcome.

MOHAN, M., KATIYAR, A., SHUKLA, A., PANDEY, P. AND SHANTI, S., 2014,
Emerging scenario of farm subsidies in new trade regime in India: an economic
analysis. Indian J. Agric. Econ., 69: 85-403.

PRAVEEN, K. V., ADITYA, K. S., NITHYASHREE, M. L. AND SHARMA, A., 2017,

Fertilizer subsidies in India: an insight to distribution and equity issues. J. crop
weed, 13 (3): 24-31.

SALUNKHE, H. A. AND DESHMUSH, B. B., 2012, The overview of government subsidies

to agriculture sector in India. IOSR J. Agric. Vet. Sci., 1 (5): 43-47.

SATISHKUMAR, M., REDDY, S. B., PUJARI, R. AND MARUTI, K., 2020, Structure of
agricultural input subsidies in India. Curr. Biot., 2 (9): 966-967.

SHARMA, V. P. AND THAKER, H., 2009, Economic policy reforms and the Indian fertilizer
industry.

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