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UPSC GS Paper – 3: Q14. What are the direct and indirect subsidies provided to farm sector in India? Discuss the issues raised by the World Trade Organization (WTO) in relation to agricultural subsidies.

Gaurav Soni September 30, 2023 04:35 7894 0

DAILY UPSC ANSWER WRITTING 2023 General Studies-III

Review direct and indirect subsidies for India's farm sector and WTO issues related to agricultural subsidies. Insights for UPSC GS Paper 3.

UPSC GS Paper – 3: Q14. What are the direct and indirect subsidies provided to farm sector in India? Discuss the issues raised by the World Trade Organization (WTO) in relation to agricultural subsidies.

Q14. What are the direct and indirect subsidies provided to farm sector in India? Discuss the issues raised by the World Trade Organization (WTO) in relation to agricultural subsidies.

How to approach the question

Introduction

●      Write about subsidies for farm sector in India briefly

Body

●      Write the direct and indirect subsidies provided to farm sector in India

●      Write the issues raised by the World Trade Organization (WTO) in relation to agricultural subsidies

●      Write suitable way ahead in this regard

Conclusion

●      Give appropriate conclusion in this regard

Introduction

Agricultural subsidies are financial aids provided by the government to support farmers in improving their income, reducing the cost of farming, and promoting agricultural sustainability. These subsidies play a crucial role in maintaining the health of the farm sector, especially in developing economies like India. Farm subsidies constitute about 2% of India’s GDP.

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Body

Direct and Indirect Subsidies in the Farm Sector in India

Direct Subsidies:

  • Direct Benefit Transfers (DBT): One such example is the PM-KISAN scheme where financial support of Rs. 6,000 per year is directly deposited into the farmers’ bank accounts. This cuts out the middlemen, ensuring that the full benefit reaches the farmers.
  • Input Subsidies: Subsidies on fertilizers, such as under the Nutrient Based Subsidy (NBS) scheme, make key inputs like Urea and DAP more affordable. For example, a 50 kg bag of Urea retails at about Rs. 268, which is significantly less than the market price.
  • Credit Subsidies: Under schemes like the Kisan Credit Card (KCC), farmers are offered loans at subsidized rates. This lowers their financial burden and enables them to invest in quality inputs.
  • Insurance Schemes: The Pradhan Mantri Fasal Bima Yojana (PMFBY) offers farmers subsidized crop insurance. This helps to mitigate losses due to unforeseen events like droughts or floods.

Indirect Subsidies:

  • Irrigation Subsidies: Government schemes like the Accelerated Irrigation Benefits Program (AIBP) help states complete pending irrigation projects. The subsidies can cover up to 60% of the total cost, incentivizing farmers to move towards more efficient irrigation methods.
  • Power Subsidies: Many states, including Punjab and Haryana, offer free or subsidized electricity for agricultural purposes under their respective state schemes. This enables farmers to operate tube wells and irrigation pumps without incurring high energy costs.
  • Transport Subsidies: Various state governments offer subsidies for transporting agricultural produce to markets. The Rashtriya Krishi Vikas Yojana (RKVY) is one such scheme aimed at strengthening post-harvest distribution infrastructure.
  • Seed subsidy: To upgrade the quality of farmers’ saved seeds, financial assistance for distribution of foundation/certified seeds at 50% cost of the seeds for cereal crops and 60% for pulses, oilseeds, fodder and green manure crops for production of quality seeds is available /provided for one acre per farmer under the component Seed Village Programme of SMSP
  • Warehousing Subsidies: Schemes like the Warehousing Development and Regulatory Authority (WDRA) offer subsidies for the construction of storage facilities. This helps in reducing post-harvest losses and ensures better price realization for farmers.

Issues Raised by WTO on Agricultural Subsidies

  • Amber Box Subsidies: According to WTO norms, subsidies in the Amber Box should be reduced or eliminated. India argues that such subsidies are essential for its small-scale farmers. Eg: the fertilizer subsidies fall under this category, which India maintains are critical for enhancing crop yields.
  • Export Subsidies: India’s subsidies for agricultural exports, such as for sugar, have faced criticism from WTO members like Brazil and Australia for distorting global prices. They argue that these subsidies give Indian producers an unfair advantage in the international market.
  • Domestic Support: The Minimum Support Price (MSP) given to wheat and rice farmers in India has been cited by the WTO as distorting trade. It claims that such domestic support inflates Indian exports, creating an imbalanced trading environment.
  • Public Stockholding: India’s policy of maintaining large food grain reserves for food security has been a contentious issue at the WTO. Eg: the Food Corporation of India (FCI) buys large quantities of wheat and rice, which the WTO claims can distort market prices.

Way Forward

  • Balancing Subsidy Models: India should consider gradually transitioning from a subsidy-centric model to one focused on direct income support, such as the Universal Basic Income for farmers, to offer them a financial safety net without distorting trade.
  • Invest in Agricultural Research: Increased investment in R&D could help develop crop varieties that are both high-yield and sustainable. These new crops could open up new export markets and would be WTO-compliant as they don’t require subsidies.
  • Multi-Stakeholder Consultation: Create a consultative committee comprising farmers, agri-business representatives, and policy experts to regularly discuss WTO compliance and the way forward in subsidy reforms.
  • International Negotiations: India’s proactive stance during the Bali Ministerial Conference of the WTO in 2013 helped gain concessions on food stockpiling. This shows the importance of strong negotiation skills in international forums.
  • Capital investment: To develop decentralized infrastructure for storage , transport , mechanization etc than giving monetary subsidies .
  • Public-Private Partnerships: Involve the private sector in developing agricultural infrastructure like warehousing and cold storage. Tax incentives could be provided to companies that invest in this space, which can then reduce post-harvest losses.

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Conclusion

To conclude, while the WTO aims to streamline global agricultural trade, it must also be sensitive to the diverse agricultural landscapes of its member countries. India, with its unique challenges and opportunities, must negotiate carefully at WTO forums to safeguard the interests of its agricultural sector.

 

 

For a Detailed explanation of the UPSC GS-01 Mains question 2023, click here.

For a Detailed explanation of the UPSC GS-02 Mains question 2023, click here.

For a Detailed explanation of the UPSC GS-03 Mains question 2023, click here.

For a Detailed explanation of the UPSC GS-04 Mains question 2023, click here.

 

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