Monday, May 24, 2010


Subsidy in any form is a dirty word for some but it is practiced world over by each country to protect the interests of its citizens in some critical areas of economy. Billions of dollars being spent on agricultural subsidies by the US and the EU are nothing short of a scandal, hitting the very foundation of a free and fair world trade. Imagine a country like the US even subsidizing its ultra rich farming families not to grow food crops in government lands leased out to them, the intent being to prevent instability in the market due to excess production! GOI provides massive subsidies, direct as well as indirect, to millions of farmers in India for buying fertilizers, through free and/or low cost power and water, interest waivers on loans and periodic loan waivers. A nation of huge population like India cannot afford to ignore the interests of the growers because the farming community, forming more than 70% of the population determines whether there is famine or glut of agricultural crops. Financial experts always frown on subsidies and alternatives are suggested from to time to wean away the country from such profligacy.

"Instead of providing subsidy through free electricity and cheap fertiliser, an international food policy research institute has advocated gradual withdrawal of the subsidy regime by providing short-term compensation to farmers and investing the subsidy amount directly for increasing farm yield. A senior official with Washington-based International Food Policy Research Institute (IFPRI) told FE that the agriculture growth could be achieved by gradually removing farm subsidy. "The government must cut down on subsidy in agriculture such as electricity and fertiliser and compensate farmers in short run after withdrawing the subsidy so that they do not get hurt due to change in the policy regime," Mark Rosegrant, director, environment and production technology division, IFPRI, told FE. He also suggested that the government must invest the financial resources saved because of subsidy cut into the agriculture sector so that it becomes viable".

Sitting in Washington and giving a prescription for India may look far-fetched, especially from persons not familiar with the peculiarities of Indian agricultural situation but there is some substance in the argument. A farmer used to subsidies and assured minimum support price for his product can never be expected to be an efficient producer and his operations may never be viable as an economic activity with business potential. Unless there is consolidation of agricultural holdings, most of them having less than 5 hectares currently, farming sector cannot sustain itself for long.


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