Subject: Economy

India's agricultural subsidy regime has evolved significantly since the Green Revolution, becoming a crucial support system for farmers while simultaneously creating various economic distortions.

Types of Agricultural Subsidies at National Level

• Input Subsidies:
  • Fertilizer Subsidy: Budget allocation of ₹1.67 lakh crore for 2025-26, including Nutrient Based Subsidy (NBS) scheme and urea subsidy.
  • Irrigation Subsidy: Support through PM Krishi Sinchayee Yojana (PMKSY) for micro-irrigation systems and solar-powered pumps.
  • Credit Subsidies: Interest subvention through Kisan Credit Cards and crop insurance premium support via PM Fasal Bima Yojana.

State Level Agricultural Subsidies

• Power Subsidies: Free or heavily subsidized electricity for agricultural operations in states like Punjab and Tamil Nadu.
• Market Support: State-specific Minimum Support Price (MSP) bonuses above central MSP.
• Equipment Subsidies: Support for farm mechanization and modern farming techniques through state schemes.

Critical Analysis of Subsidy Regime

Positive Impacts

• Ensures food security and self-sufficiency in agricultural production.
• Protects farmer income and reduces production costs.
• Promotes adoption of modern farming techniques and technologies.

Distortions Created

1. Economic Distortions:

   • Over-utilization of subsidized inputs leading to resource depletion.
   • Market price distortions affecting crop choice and production patterns.

2. Environmental Impact:

   • Environmentally harmful agricultural support policies cost approximately US$472 billion annually (2019-2023).
   • Excessive use of chemical fertilizers leading to soil degradation.

3. Fiscal Burden:

   • High subsidy bill affecting fiscal deficit.
   • Reduction in agricultural investment due to revenue constraints.

The agricultural subsidy regime in India requires a balanced approach between farmer welfare and economic efficiency. Implementation of Direct Benefit Transfer (DBT) and focus on sustainable farming practices through schemes like Paramparagat Krishi Vikas Yojana can help minimize distortions while ensuring farmer support.