Farm Subsidy Economics in India
By: Amit Bhushan Date: 30th Oct. 2014
The way agri-subsidies are distributed in India, it is violates basic tenets of democracy. Normally one would expect a defined scientific measure whereby subsidies are divided and this should have near equal impact for 'each' farmer. In our case, subsidies are given to produce cereals and/or some defined commodities in the form of 'Minimum or advised support price'. Subsidies are given on purchase of fertilizers and other agri-chemicals as well as seeds. Subsidies are given on 'energy' to mitigate irrigation as well on purchase of drip-irrigation facilities. Such regime entitles the better off to actually receive more subsidy for wasteful uses rather than targeting subsidy to the neediest for productive purpose. Farm subsidies are unlike ration subsidies and are for production support rather than consumption purpose and therefore need a different regime is being denied without even a debate since it may not suit existing 'players' who simply raise issue of funding or plight of farmers of account of bank loans or the lack of it. Since the change has potential to impact a large number of people and has its risks which can escalate very fast, so not many political leaders want to dwell upon this change. So to gather a large number of leaders for the cause seems infeasible at the moment, primarily on account that financing such leadership lacks support from the organized sector.
Needless to say that a farmer with large landholding benefits more since he would consume more of subsidized inputs and generates more output which can be sold at 'support prices'. The incentive to produce crops which consume lower amount of subsidized inputs is killed (this is well known and well documented). A political structure apparently concerned about 'farmer's welfare' carefully nurtures the 'welfare economics' egged by the industries which benefits from the structure. We also have a regime of subsidized interest loans (without collateralization of lands) nurtured to support buying of inputs. This loan often remains unpaid and need to be waived off at regular intervals. Quite a lot of this waiver is a result of poor advisory by input providers rather than farmer's own mistakes or greediness (this is because condition of farmer is still bad unlike industrial defaulters who roam in flashy cars). However, the political class has absolutely no impact or concern to the situ and carries on their game while the farmer class is trapped due to such prevailing market condition that he is unable to work out his way out of such trap. The banks under normal scenario could have been opposition but since the waiver offers easy escape compared to the tough job of establishing creditworthiness and state orchestrated waivers ensure an easy livelihood for numerous cooperative and rural banks that we do not see any opposition to the scheme of things.
If simply a method is devised to distribute subsidy per farmer over his land under cultivation in a season so that we have a formula based distribution which is then acts as a reward for those using less of inputs for same value of output, then the economics changes to the benefit of producer rather than input providers or 'subsidy vultures'. We have big farmer oriented Netas who would pour out tonnes of tears to maintain and improve allocation to this regime. Increased allocation may have temporary impact to ameliorate the current prevailing crisis but leads to further deepening of the farm as well as farmer condition over the long run.
The failure of direct benefit transfer of GOP which even didn't get experimented upon over distribution of farm subsidies is a shining example of the strength of the lobbies and their concern about suicides prevalent in the farming community. Our agri-researchers supported by Kisan Call centers drool over increasing per hectare productivity but would never fully educate farmers about economics of subsidy and the game. Poor use of non-subsidized inputs is primarily due lack of promotional incentives to such efforts which normally remain in unorganized sector supported by NGOs rather than a large scale business plan. The politics of silence by old politicians gives opportunity to new politicians to educate farm vote banks to bring forth political change and subsequent economic changes. It is difficult to fight against the 'incentives' and educate about the 'incentive trap' to people however presence of non-landowners and non-land dependents in our villages is rising and presents opportunity for such political changes for those who may be interested. Some of the most agri-rich states proffer opportunities for new political leaders since the gap has not been addressed by any of the existing political parties.
By: Amit Bhushan Date: 30th Oct. 2014
The way agri-subsidies are distributed in India, it is violates basic tenets of democracy. Normally one would expect a defined scientific measure whereby subsidies are divided and this should have near equal impact for 'each' farmer. In our case, subsidies are given to produce cereals and/or some defined commodities in the form of 'Minimum or advised support price'. Subsidies are given on purchase of fertilizers and other agri-chemicals as well as seeds. Subsidies are given on 'energy' to mitigate irrigation as well on purchase of drip-irrigation facilities. Such regime entitles the better off to actually receive more subsidy for wasteful uses rather than targeting subsidy to the neediest for productive purpose. Farm subsidies are unlike ration subsidies and are for production support rather than consumption purpose and therefore need a different regime is being denied without even a debate since it may not suit existing 'players' who simply raise issue of funding or plight of farmers of account of bank loans or the lack of it. Since the change has potential to impact a large number of people and has its risks which can escalate very fast, so not many political leaders want to dwell upon this change. So to gather a large number of leaders for the cause seems infeasible at the moment, primarily on account that financing such leadership lacks support from the organized sector.
Needless to say that a farmer with large landholding benefits more since he would consume more of subsidized inputs and generates more output which can be sold at 'support prices'. The incentive to produce crops which consume lower amount of subsidized inputs is killed (this is well known and well documented). A political structure apparently concerned about 'farmer's welfare' carefully nurtures the 'welfare economics' egged by the industries which benefits from the structure. We also have a regime of subsidized interest loans (without collateralization of lands) nurtured to support buying of inputs. This loan often remains unpaid and need to be waived off at regular intervals. Quite a lot of this waiver is a result of poor advisory by input providers rather than farmer's own mistakes or greediness (this is because condition of farmer is still bad unlike industrial defaulters who roam in flashy cars). However, the political class has absolutely no impact or concern to the situ and carries on their game while the farmer class is trapped due to such prevailing market condition that he is unable to work out his way out of such trap. The banks under normal scenario could have been opposition but since the waiver offers easy escape compared to the tough job of establishing creditworthiness and state orchestrated waivers ensure an easy livelihood for numerous cooperative and rural banks that we do not see any opposition to the scheme of things.
If simply a method is devised to distribute subsidy per farmer over his land under cultivation in a season so that we have a formula based distribution which is then acts as a reward for those using less of inputs for same value of output, then the economics changes to the benefit of producer rather than input providers or 'subsidy vultures'. We have big farmer oriented Netas who would pour out tonnes of tears to maintain and improve allocation to this regime. Increased allocation may have temporary impact to ameliorate the current prevailing crisis but leads to further deepening of the farm as well as farmer condition over the long run.
The failure of direct benefit transfer of GOP which even didn't get experimented upon over distribution of farm subsidies is a shining example of the strength of the lobbies and their concern about suicides prevalent in the farming community. Our agri-researchers supported by Kisan Call centers drool over increasing per hectare productivity but would never fully educate farmers about economics of subsidy and the game. Poor use of non-subsidized inputs is primarily due lack of promotional incentives to such efforts which normally remain in unorganized sector supported by NGOs rather than a large scale business plan. The politics of silence by old politicians gives opportunity to new politicians to educate farm vote banks to bring forth political change and subsequent economic changes. It is difficult to fight against the 'incentives' and educate about the 'incentive trap' to people however presence of non-landowners and non-land dependents in our villages is rising and presents opportunity for such political changes for those who may be interested. Some of the most agri-rich states proffer opportunities for new political leaders since the gap has not been addressed by any of the existing political parties.
