Agricultural subsidies are financial or policy supports given to farmers to reduce their cost of production, ensure food security, and stabilize incomes. In India, they account for nearly 2% of GDP (Economic Survey 2022–23). However, certain subsidies have been flagged by the WTO’s Agreement on Agriculture (AoA) for being trade-distorting.

I. Direct Subsidies to the Farm Sector

1. Minimum Support Price (MSP) Operations – Government procurement of 23 crops at assured prices.

   Example: Wheat & rice procurement by FCI; MSP for paddy in 2023–24 fixed at ₹2,183/quintal.

2. Direct Income Transfer Schemes – Cash transfers to farmers to supplement incomes.

   Example: PM-KISAN – ₹6,000/year to ~11.8 crore farmers (2024).

3. Fertilizer Subsidy – Price support for urea and nutrient-based fertilizers.

   Example: Fertilizer subsidy outlay of ₹1.75 lakh crore in Union Budget 2023–24.

4. Interest Subvention on Crop Loans – Loans up to ₹3 lakh at 4% effective interest rate.

   Example: Interest Subvention Scheme under NABARD.

5. Crop Insurance Premium Support – Government paying a major share of premium under PMFBY.

   Example: Farmers pay only 2% of premium for kharif crops.

II. Indirect Subsidies to the Farm Sector

1. Irrigation Subsidy – Canal water supplied at concessional rates.

   Example: Punjab & Haryana provide heavily subsidized surface irrigation.

2. Electricity Subsidy – Free or cheap power for pump-sets.

   Example: Punjab provides free electricity to ~14 lakh tubewell connections.

3. Transport & Storage Subsidy – Reduced transport costs and warehousing facilities.

   Example: FCI’s transport subsidy for movement of grains to deficit states.

4. Tax Concessions – Complete income tax exemption on agricultural income.

   Example: Section 10(1) of Income Tax Act.

5. R&D and Extension Services – Public investment in research, training, and advisory services.

   Example: ICAR & Krishi Vigyan Kendras’ farmer training programs.

III. WTO Concerns Regarding India’s Agricultural Subsidies

1. Breach of “De Minimis” Limit: WTO’s AoA permits developing countries’ product-specific support up to 10% of the value of production.

   Example: US and Australia have claimed India’s MSP support for rice and wheat exceeds this threshold.

2. Export Subsidy Allegations: Surplus stocks procured at MSP are sometimes exported, indirectly subsidising exporters and lowering global prices.

   Example: Wheat exports in 2020–21 after MSP procurement flagged by WTO members.

3. Public Stockholding (PSH) Programme Disputes: WTO allows PSH for food security but not for trade-distorting purposes; India is accused of building large stocks that affect global markets.

   Example: Developing countries, including India, are seeking a “permanent solution” on PSH at WTO.

4. Sugar Subsidy Dispute: WTO ruled in 2021 that India’s cane production subsidy and sugar export subsidy violated AoA rules.

   Example: Brazil, Australia, and Guatemala initiated disputes against India.

5. Transparency & Reporting Delays: India has been criticised for delayed or incomplete notifications of domestic support data to WTO’s Committee on Agriculture.

   Example: Some MSP-related data for 2018–19 was submitted years later.

6. Green Box Classification Challenges: Some Indian measures claimed as Green Box (non-trade distorting, e.g., input subsidies for resource-poor farmers) are questioned by members as actually being trade-distorting.

7. Impact on Global Prices: Large-scale MSP procurement and subsidised inputs are alleged to depress international commodity prices, affecting farmers in other exporting countries.

IV. Way Forward

1. Reform MSP System – Shift towards price deficiency payments to avoid exceeding WTO limits.
2. Targeted Subsidies – Use DBT for fertilizer & electricity to reduce leakages.
3. Enhance Green Box Spending – Focus on irrigation efficiency, R&D, and climate-resilient farming.
4. Negotiate WTO Reforms – Push for a permanent solution on public stockholding for food security.

Subsidies are essential for farmer welfare and food security but must be redesigned to be WTO-compliant and fiscally sustainable. Balancing domestic priorities with global trade rules will be key for India’s agricultural policy in the coming decades.