Issues of subsidies in India

Major Subsidies in India and Budget allocated

In 2022-23 Subsidies constituted nearly 9 percent of the total central government expenditure. The total expenditure on subsidies is estimated to be Rs 3,55,639 crore, a decrease of 27.1 percent from the revised estimate of 2021-22.

The Major subsidies include

Here, the other subsidies include interest subsidies for various government schemes, subsidies for the price support scheme for agricultural produce, and assistance to state agencies for procurement. Some examples of subsidies for various   government schemes are PM-KISAN, Pradhan Mantri Awas Yojana, National Health Mission etc.

The problems of subsidies

Issues of agricultural subsidies in India

• The farm subsidy can be further divided into Direct Subsidies (such as the PM Kisan Scheme, PAHAL in LPG, Farm Loan Waivers) and Indirect Subsidies (Irrigation subsidy, Power subsidy, Fertiliser subsidy, Credit subsidy).

These are some of the issues agricultural subsidies and farm subsidies in India-

• Providing subsidies has led to over usage of natural resources.

Subsidies for agriculture can foster the overloading of croplands, which leads to erosion and compaction of topsoil, pollution from synthetic fertilisers and pesticides, and release of greenhouse gases, among other adverse effects.

As per Mint Newspaper, Based on a study of the arid northern regions of India, including Punjab and Haryana, and parts of Rajasthan and Gujarat, generous electricity subsidies combined with a flat monthly electricity tariff, rather than a per-unit charge for consumption, has incentivised the over-extraction of groundwater. As per the report, the annualised costs of repeated investment in deepening wells are as high as 25% of the average annual net income from crops(2019).

• Indirect subsidies are marred with corruption due to intermediaries. Leaks in national social-security schemes (including Public Distribution System, Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA), old-age pensions, healthcare)  cost India billions.
• Subsidies like MSP, which are applicable for only a few crops, have led to cereal centric agriculture with distorted cropping patterns, as farmers tend to grow only those crops for which they are given subsidies.
• Pressure from the international community to reduce subsidies as per WTO subsidies that distort the market comes under the Amber box. (Amber box subsidies are all government measures considered to distort trade and production. These are Subsidies that are directly related to production quantities.
• As per Economic Survey-2018, wealthy farmers are benefited over small farmers from the farm subsidies. Thus the objective of giving subsidies is not fulfilled. This is the case frequently witnessed in Punjab and Haryana, where affluent farmers enjoy taxpayer money.
•  Also, the subsidies lead to a substantial financial deficit and burden on the financial exchequer.

The problems of subsidies at the international level 

Subsidies in other countries also act as barriers to the goods of developing countries like India. For instance, Steel is imported at dumped/subsidised prices from China, Chinese investments in Indonesia and MSME factories in the stainless steel industries in India suffer.

Subsidies granted to developed countries are way higher than those provided in developing countries like India.

There are loopholes in the Agreement of Agriculture signed under WTO as it does not consider equity. For developing countries, spending on price support measures and input subsidies taken together cannot exceed 10 percent of the total value of agricultural production. For developed countries, it is only 5 percent of their value of agricultural production. The USA misuses this provision to provide two times of subsidy to wool compared to other products.