By Arpita Abraham
Farmers are the backbone of the Indian economy. Unfortunately, in recent times there has been unrest among their community regarding farm loan waivers. As per the Agriculture Census 2010-11, 67.10% of Indias total farmers are marginal farmers (below one-hectare area) followed by small farmers (1-2 hectare area) at 17.91%.This underscores the importance of subsidies in the agriculture sector.
An agriculture subsidy is a benefit given by the government to the farmers and agribusinesses that reduces their costs and improves incomes. They have been used extensively ever since the Green Revolution started in the early 1960s. The High Yielding Variety (HYV) seeds are associated with high irrigation and pesticide demand; the costs borne by farmers increased. Thus the government began paying larger input subsidies. However, does the agriculture subsidy actually pay off in the long run?
What’s wrong with the current system?
Earlier farmers were given fertilisers and seeds at subsidised rates through Public Distribution Systems (PDS). Pravesh Sharma, who handled farm subsidies in Madhya Pradesh, said that he observed that Dalits and tribals were being used as proxies by rich farmers to avail subsidies meant for poor farmers. Upon talking to his colleagues in other states, he found out that this scenario was prevalent all over India. A significant amount of agriculture subsidy was being used up by resource-rich farmers, thus depriving the economy of public investment. When the economy has to deal with crucial areas like low education, poor healthcare, financial illiteracy, sanitation problems, and inadequate infrastructure, all of which require huge public investment, providing subsidies through the PDS was an inefficient use of taxpayers money.
Investigating feasible alternatives
To make the distribution system more transparent, the Direct Benefit Transfers (DBT) model was introduced in seed subsidy in March 2017. A database of farmers is created including his/her identification detail, land holdings and bank account numbers. Each farmer is registered in a portal and, following verification, is given a unique Farmer Identification Number. Under this model, the farmers buy supplies at the market price and the subsidy is credited to their bank accounts. Recently the DBT model was introduced as an experiment in Uttar Pradesh(UP) and Orissa to provide seed subsidies. With DBT, the subsidy amount on seeds paid out by the UP government in 2015-16 amounted to Rs. 152 crore, while the previous years expense was Rs. 302 crore. Additionally, many marginal farmers could avail the benefit.
Earlier, when the subsidies were being exploited by many resource-rich farmers, inputs were being inefficiently employed. This aggravated environmental degradation. The DBT model ensures allocation of subsidies to the farmers who genuinely need them. Hence, the efficiency of the usage of these resources will improve.
Are these alternatives sustainable?
Most of the marginal and small farmers either do not have enough savings or the required financial literacy to open a bank account. The income and financial literacy among farmers need to be improved so that they can utilise the intended benefits of such government schemes. The average monthly income of an Indian farmer is Rs 6,400. To improve farmers income, public investment and subsidies should be raised in high-value commodity sectors like poultry and dairying, horticulture. This will provide an incentive for farmers to undertake these profitable projects.
One of the drawbacks of the DBT model is that it would be difficult for poor farmers to buy inputs at market price. To prevent them from consulting informal sources for loans which will increase their indebtedness, easier access to credit subsidy should be provided to them. These should provide farmers with loans at lower interest rates.
Owing to the high dependency of agricultural yield on monsoons, the prices of crops often fluctuate. Last year’s high rainfall led to a drop in the prices of the farmers produce. Despite agriculture subsidies to increase farmers income, they suffered low returns and high indebtedness. This highlights the fundamental need to spend on providing good storage facilities to farmers in India. As the agriculture subsidy system becomes more transparent and efficient with the DBT model, due attention should be paid to financial literacy of farmers, infrastructure, and focused subsidies for profitable crops that will shift the cultivation pattern to increase farmers income in the country.
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