Chapter 13 - Economics and Politics of Farm Subsidies in India

Abstract

Subsidies play a crucial role in a welfare state. Yet, both consumer and producer subsidies should be focused, partial, and temporary in nature. Across-the-board, undifferentiated subsidies tend to gravitate towards the more influential and undeserving rather than targeted beneficiaries. An absolutely free supply of consumer goods and inputs leads to considerable wastage, and misuse as well as pilferage in the supply channels. Food and other subsidies in India suffer from an inefficient distributive system, and not more than 42% of subsidized food reaches the targeted beneficiaries. Pilferage of the supply channel is highest in the state of Punjab. Direct disbursal of consumer subsidies through security printed food stamps can reduce this pilferage to the minimum. Agricultural input subsidies in their present form, under the system of minimum support pricing, do not find their way into the pockets of the producers but get translated into consumer subsidies. There is therefore a strong case for investment subsidies that improve the capacities of the producers, rather than input subsidies that benefit consumers more as well as lead considerably to the escalation of land rent and are a disadvantage for cultivators, especially tenant cultivators.