What are the types, and rationale of providing subsidies to the farmers in India? Discuss its effectiveness.
Introduction : Write meaning of subsidies and its type.
Body : Write rationale behind giving subsidy in Indian context
Conclusion : Discuss the effectiveness by linking it with agricultural growth. Also connect with concept of ‘crowding out’ effect.
Types of Subsidies
There can be several forms of subsidies, each of which can be used for a definite purpose. We discuss them below in brief.
a) Input Subsidies: Subsidies can be granted through distribution of inputs at 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. Naturally several varieties of subsidies can be named in this category.
i) Fertilizer Subsidy:
ii) Irrigation Subsidy: (you can writea nit about all subsidies if it is a 15 marker questions)
iii) Power Subsidy:
iv) Seed Subsidies:
v) Credit Subsidy:
b) Price Subsidy:
c) Infrastructural Subsidy
d) Export Subsidies:
Rationale for Subsidies
For an agrarian economy like India, with bulk of its farmers being of small and marginal kind, the rationale for agricultural subsidies are easily understood. Since many farmers are close to subsistence level of living, subsidies sustain them in carrying out the production and consumption activities. While this is the fundamental rationale for subsidies, there are many other objectives with which subsides are provided to farmers.
Effectiveness of Subsidy
One notable point about subsidies is that it raises the profit level of the farmers. And this is true for all farmers who own land, bear cost of production to produce for the market or for self-consumption
The question of subsides is hotly debated in our country. Many people recommend abolition of subsidies. Advocates of the policy of scraping subsidies say that subsidies distort prices; they do not let the market allocate resources efficiently. Another justification given for scrapping subsidies is that it leads to higher fiscal deficit which causes problems like higher inflation, higher balance of payment difficulties and falling exchange rate.