Dope sheet- agricultural subsidies in India

1) What is subsidy? Subsidies are grants given to a specified public to get a desired action from their side, for instance, when government is feeling that the yield per hectare is low which can be increased by using fertilizers, than government gives fertilizers subsidies so that small farmers can purchase the fertilizer. This means that subsidy is changing the price exogenously to alter the demand and supply figures. Most controversial classes of subsidies across the world are fuel subsidies and agricultural subsidies and today we are discussing agricultural subsidies.

2) What are the latest news stories about subsidies? There is omnipresence of this word subsidy. Recently some big stories came out of this word. Some 12 stories came in month of October itself. For example a) Government is worried because they think their subsidy bill will increase this time because of good monsoons. b) Raghuram rajan, chief advisor to prime minister says we are mistargeting subsidies. c) Manpreet sing from shrimoni akali dal (sad) was thrown out of his finance portfolio because he wanted to do away with power subsidies of 3000 crore. Punjab Government is in debt of almost 150000 crore rupees.

3) Why we need subsidy, what are the benefits of subsidy as a policy? a) Inducing higher consumption/ production b) Offsetting market imperfections including internalisation of externalities c) Achievement of social policy objectives including redistribution of income, population control, etc. d) It can help in controlling the prices to maintain stability. e) Especially in case of agriculture where food is basic right of all, you cannot leave everything to market, government intervention is needed.

4) Then what is the controversy around subsidies when there are so good reasons to do so? a) The biggest problem in agricultural subsidy is that you cannot distinguish between the needy and a non needy. In US 90 percent of subsidy goes to largest 25 percent of farms. In European Union,

Japan and Canada this figure is 70 percent. Controversy about the real benefits of subsidies is a world phenomenon. b) Joseph Stiglitz, a Nobel laureate in economics, has argued that farm subsidies have a long term effect of raising global food prices, which in fact harms the poor, increases malnutrition, etc. And the economic explanation of so is that it alters free market conditions. c) Also subsidies hamper terms of trade and so doesn’t allow you to take benefits of comparative advantage. d) Yet again one big issue is about inefficiencies created by subsidies. See subsidies in areas such as education, health and environment at times merit justification on grounds that their benefits are spread well beyond the immediate recipients, and are shared by the population at large, present and future. For many other subsidies, however the case is not so clear-cut. Arising due to extensive governmental participation in a variety of economic activities, there are many subsidies that shelter inefficiencies or are of doubtful distributional credentials. And especially in India where administrative management doesn’t have a complete control on corruption e) There are issues like the straining effects of agricultural subsidies on the sub-optimal use of scarce inputs like water and power induced by subsidies, and whether subsidies lead to systemic inefficiencies. Inadequate targeting of subsidies is also a big debate.

5) Which are the major types of agricultural subsidies in India? There are two major types of subsidies which are fertiliser subsidies and food subsidy. They two account for almost 90 percent of agricultural subsidy. In addition to this one more form which is intangible and uncountable is that, agricultural income is not taxed in India. These days the issue revolves around fertiliser subsidies more. The following is data on amount of subsidies 1990 Total subsidy Fertiliser subsidy Food subsidy 12158 crore 4389 crore 2450 crore 2009 129243 crore 75849 crore 43627 crore percentage change 10.6 time increase 17 times increase 18 times increase

6) What is fertiliser subsidy? In 1967, then-Prime Minister Indira Gandhi imported 18,000 tons of hybrid wheat seeds from Mexico. The effect was miraculous. The wheat harvest that year was so bountiful that grain overflowed storage facilities. Those seeds required chemical fertilizers to maximize yield. The challenge was to make fertilizers affordable to farmers who lacked the cash to pay for even the basics—food, clothing and shelter.

Back then, giving cash or vouchers to millions of farmers living all over India seemed like an impossible task fraught with the potential for corruption. So the government paid subsidies to fertilizer companies, who agreed to sell for less than the cost of production, at prices set by the government. This is the basic concept of fertiliser subsidy. Fertilizer manufacturing companies sprang up around the country. Nagarjuna Fertilizers & Chemicals Ltd. became one of the most profitable publicly listed companies in India. Today India is one of the largest producer and consumer of fertiliser. The current level production of fertiliser is 16 million tonnes. And consumption is 23 million tonnes. When started in 1977 the scheme was retention price cum subsidy scheme (RPS) where retention price is fixed price paid to company and the difference by which it is more than selling price that is subsidy. Later in 2003 Manmohan Singh changed it to new pricing scheme (NPS).

7) What are the different controversies hanging over fertilize subsidies? India has been providing farmers with heavily subsidized fertilizer for more than three decades. And following are the controversies a) The issue is that how much of it is going in the pocket of farmer and how much to fertiliser companies. Well a research by iim ahmedabad says that on an average 67 percent of subsidy is going to farmer. b) Another issue is that how much is going to small, needy farmers and how much to the large farmers. Same research says that 52 percent of subsidy goes to small farmers. c) How much of subsidy is going to well developed regions and how much to less developed regions. More than 50 percent of subsidy is going to top 5 states, uttar Pradesh, Andhra Pradesh, Maharashtra, Madhya Pradesh and Punjab. d) There is also concentration of crops which use subsidies and that is rice, wheat, cotton and sugarcane. e) There is a big problem of excess usage of urea over phosphorus and potassium fertilisers.

8) Why India is facing relative excessive usage of urea? In 1991, with the cost of the subsidy weighing heavily on India's finances, Manmohan Singh, then finance minister pushed to eliminate it. Most fertilizer companies lobbied fiercely to retain the program. Many legislators also resisted ending the subsidy, fearing a backlash from farmers. The

government has subsidized other fertilizers besides urea. In budget crunches, subsidies on those fertilizers have been reduced or cut, but urea's subsidy has survived. That's because urea manufacturers form a powerful lobby, and farmers are most heavily reliant on this fertilizer, making it a political hot potato to raise the price. And this created a bog mess afterwards. "That's when the imbalanced use of fertilizers began," says Pratap Narayan, ex-director general of the industry group, the Fertilizer Association of India. "The business interests lobbied and the business interests prevailed," says Ashok Gulati, the director in Asia of the International Food Policy Research Institute, a Washington-based think tank, who was involved in the policy discussions at the time. A last-minute compromise eliminated the subsidy on all fertilizers except for urea. Overproduction and over use of fertilisers lead to environmental degradation. In the state of Haryana, farmers used 32 times more nitrogen than potassium in the fiscal year ended March 2009, much more than the recommended 4-to-1 ratio, according to the Indian Journal of Fertilizers, a trade publication. In Punjab state, they used 24 times more nitrogen than potassium, the figures show. "This type of ratio is a disaster," Mr. Gulati says. "It is keeping India from reaching the production levels that the hybrid seeds have the power to yield." This is a vicious circle. The soil is getting weaker and weaker over the last 10 to 15 years. We need more and more urea to get the same yield. The overuse of one type—urea—is so degrading the soil that yields on some crops are falling and import levels are raising. So are food prices, which jumped 19% last year. The country now produces less rice per hectare than its far poorer neighbours: Pakistan, Sri Lanka and Bangladesh. China has 6.5 tonnes per hectare, Pakistan 3.5, India 3.4 The excess fertilizers make their way into the food chain, causing harm to human beings, animals, birds, and insects and disturb the soil's ecological balance. Excess use of fertilizers can also pollute ground water and other water sources. All of this can cause a health hazard to impacted populations of plant, animal and human beings. Human beings who consume food that has been grown through use of excess fertilizers carry the risk of contracting various diseases.

9) What is government doing regarding this uneven usage problem? Prime Minister Manmohan Singh's cabinet announced that India would adopt a new subsidy program in April, hoping to replenish the soil by giving farmers incentives to use a better mix of

nutrients. But in a major compromise, the government left in place the old subsidy on urea— meaning farmers will still have a big incentive to use too much of it. Mr. Singh's government, recognizing the policy failure, announced a year ago that it intended to drop the existing subsidy system in favour of a new plan of direct transfer. But allowing urea's price to increase significantly would almost certainly trigger protests in rural India, which contains 70% of the electorate, political observers say.

10) Why direct transfer cannot work? Transfers may be preferred to subsidies on the ground that I) Any given expenditure of State funds will increase welfare more if it is given as an income-transfer rather than via subsidising the price of some commodities, and ii) Transfer payments can be better targeted at a specific income groups as compared to free or subsidised goods. But this system of direct transfer is based on unrealistic assumptions that world fertiliser market is perfectly competitive, and India entry to world market doesn’t affect world prices. These assumptions are unrealistic because there is concentration of producers and consumers of fertilisers. Mosaic (USA) and Yara (Norway) are the biggest companies in the world producing more than 60 percent of total fertiliser.

11) What the government should do then? India spends almost twice as much on food imports today as it did in 2002, according to the Ministry of Agriculture. Wheat imports hit 1.7 million tons in 2008, up from about 1,300 tons in 2002. Food prices rose 19% last year. The spending of India on education is less than almost all countries in percentage terms. This says all. In long run subsidy which is incentive is not an effective approach, in long run we should only do policies which are self implementing, like education, do education today and it will do itself after 50 years, do growth today it will do itself after 10 years. Subsidy is a momentarily tool but you can’t use it forever. There should be two things, there is lot of leakage in the system and so we cannot carry with the system as it is. Same good with two prices in the country opens up a big room for corruption. If you are subsidizing commodity then add something to it so that other people can’t use it. Like DAP. Adding DAP to urea make it unfit for commercial use but doesn’t harm at field. Other recommendations

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Reducing the overall scale of subsidies Making subsidies as transparent as possible Using subsidies for well defined economic objectives Focusing subsidies to final goods and services with a view to maximising their impact on the Instituting systems for periodic review of subsidies Setting clear limits on duration of any new subsidy schemes

target population at minimum cost
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Sources Agrium (2009), government of india report (2008), fertiliser authority of india (2009), IIM ahemdabd research paper by vijay paul sharma and hrima thaker, wiki.

Ndtv india me aap sab ka swagat hai aur aap dekh rahe hai mujhe jawaab chaiye mere yani Rahul gupta ke saath. Aj hum baat karenge bhartiye kisano ko di jane wali arthik sahayta ki jise kehte hai agricultural subsidies. Agricultural subsidies ke bare me har mahine bahut si khabrein aati hai. Is mahine bhi 12 se jyada khabrein aai, jaise sarkar chinta me hai ki is saal monsoon acha hua hai, baarish achi hui hai to subsidy ka bill bahut badh jaega. Ek aur khabar aai pardhan mantri ke hawale se, raghuram rajan jo ki pradhan mantra ke chief advisor hai, unhone kaha ki hum subsidies ko mistarget kar rahe hai, matlab jisko subsidy ka benefit milna chahiye use nahi mil raha hai. Aur sabse badi khabar aai Punjab se, vaha ke finance minister manpreet singh chahte the ki subsidies hata di jaye kyuki Punjab pe centre ka 60000 crore ka karza hai . Punjab ki psu pe bhi 66000 crore ka karza hai. . kul mila ke Punjab pe 150000 crore ka karza hai. Srimoni akali dal (sad) and I can say its really sad. Par sukhbir singh jo ki deputy chief miniter hai Punjab ke vo kehte hai ki subsidies hatana impractical hai. To aaiye jaante hai ki kyu hum subsidy dete hai, kyu subsidy dena hamesha ek vivado se ghira hua issue raha hai. Subsidies dene me aksar do galtiyan hoti hai, ya to subsidy ka fayda un logo ko de diya jata hai, jinhe zaroorat nahi, jise inclusion error kehte hai, aur dosre case me subsidy ka fayd un logo ko nahi mil pata jinhe uski zaroorat hai use exclusion error kehte hai. Darasal subsidy ka jo idea hai vo 16 shatabdi me aaya tha, England ke Thomas walsey ne introduce kiya tha, unhone ek aisa kar jise tax kehte hai nikala tha, jo aapki paisa dene ki kabliyat pe nirbhar karega. Usi ko sabse pehle subsidy kaha gaya tha. Aur aaj arthshstra jise economics kehte hai ke bahut principles use karke, humne subsidies ko ek naya roop diya hai. Aur duniya me do subsidies, agricultural and fuel subsidy hi aisi subsidy hai jo vivado se ghiri rehti hai, aur aaj hum baat karenge agricultural subsides ke bare me, kisano ko di jaane wali subsidy me bhi do mukhya prakar ki subsidies hoti hai, jinhe kehte hai food subsidy jo ki pds ke dwara di jati hai, aur fertiliser subsidy, isme mukhya bhumika fertiliser subsidy ki hoti hai. uspe utpat jise production kehte hai nirbhar karta hai. Food subsidy ka role iske baad aata hai, jo utpaat hua hai, usko mehnge daamo ke khareed ke saste me bech dena, usko food subsidy kehte hai. Dekhte hai 1990 aur 2009 me subsidy ke aakro me kya fark aaya hai, 1990 Total subsidy 12158 crore 2009 129243 crore percentage change 10.6 time increase

Fertiliser subsidy Food subsidy

4389 crore 2450 crore

75849 crore 43627 crore

17 times increase 18 times increase

Ye fia fertiliser authority of india se mile aakde hai. To ab baat karte hai fertiliser subsidy ke bare me, San 1967 me us samay ki pradhan mantri indira Gandhi ne 18000 tonn gehu ke hybrid seeds ka import mexico se kiya tha. aur gehu ki paidvar bahut bada uchaal aaya tha. in seeds ko efficiently use karne ke liye, fertiliser ki zaroorat thi. Kisano ke pass vo kharidne ke paise nahi the. Ab sarkar ko ye namumkin laga ki vo sabke ghar jake paise de to sarkar ne kuch companiyo ke saath ye deal ki ke vo saste dam pe fertiliser beche aur job hi nuksaan hoga vo sarkar companiyon ko degi jisme 12 percent profit on equity bhi joda gaya tha. is scheme ka naam tha rps retention price cum subsidy scheme. Bahut si fertiliser comapnayian ne kaam shru kiya, nagaarjuna fertiliser and chemicals ltd vo sabse jyada munafa kamane wali sarkari company thi. Aj bharat duniya ke 5 bade producers and consumer of fertilisers me aata hai. hamara production hai 16 tonne, aur consumption hai 23 tonne. Ye goi 2009 ke aakde hai. Rps ko Baad me 2003 me nps new pricing scheme ne replace kar liya. Is fertiliser subsidy ne bharat ko ek nahi anek pareshaniyon me daal diya hai, yehi vajah ki aae din subsidy ki khabar aa jati hai. Sabse pehli dikkat hai ki ye pata lagana bahut mushkil ho jata hai ki kise subsidy ki zaroorat hai kise nahi, jab subsidy ka fayda kisi ameer aadmi ko milta hai to uska matlab gareebo ke tax ka paisa ameero ko de dena aur inequality reduce karne ki jagah badha dena. America me 90 percent subsidy 25 percent bade kisano ke chali jati hai. Europe me ye figure 70 percent hai. bharat me chote kisano ko subsidy ka 52 percent hissa milta hai. ye aakde agrinium 2009 ke hai. Doosri dikkat hai ki fertiliser companiyon ko subsidy ka jyada fayda hota hai aur kisano ko kam. Iim ki research ko mane to aisa nahi hai, on an average 67 percent paisa kisano ko milta hai. ye aakde (gulati and narayan 2003) me diye gaye the. Teesri dikkat hai regional disparity aur yaha bharat bahut kamzor hai, 50 percent se jyada subsidy sirf 5 states me jati hai, uttar Pradesh, Punjab, Andhra Pradesh, Maharashtra aur Madhya Pradesh. Punjab me jaha ek hectare zameen pe 3924 rs ki subsidy kharch hoti hai, orrisa me sirf 800 rs hoti hai, Punjab me ek hectare zameen pe 165 kg urea dala jata hai, Madhya Pradesh me 30 kg daala jata hai. Chauthi dikkat hai ki kisan bas vahi crops ugate hai jinme fertiliser jyada use hota hsi aur vo hai, gehu, chawal, ganna aur cotton. 32 percent subsidy kewal chawal me kamm aati hai. iska nuksaan ye hota hai ki doosri cheezein sarkar ko import karni padti hai, jisse overall prices badh jate hai, badh jati hai.

Aur ab pachvi aur sabse badi dikkat jisse aj bharat sarkar pareshan hai vo hai urea ke use ki. Subsidies ka bil aasmaan choota dekh, 1991 me sarkar ne subsidies hatane ka faisla kiya . par vote bank kho jaane ke dar se vo ye kadam utha nahi pai, aur unhone kya kiya ki 3 fertilisers me se do jo ki potassium aur phosphorus hai unhe to decontrol kar diya par urea ko subsidy dene ka faisla kiya. Ye faisla expenditure reform commission dwara diye gaye recommendation pe kiya gaya aur bharat aaj tak iska dushkar parinaam bhugat raha hai. Darasal hua ye ki anpad kisano ne urea ko bahut adhik matra me use karna shuru kar diya, aur phosphorus aur potassium ko use karna band kar diya. Phosphorus aur potassium banana wale plant band ho gaye jo ki india ki sabse purani fertiliser company Dharamsi Morarji ke the. Paudho me sulphur, magnesium, phosphorus, aur potassium ki kamiu hone lagi, aur product per hectare ghatne laga. Kisano use badhane ke liye aur jyada urea dala aur product per hectare aur kam ho gaya. it started acting like a vicious circle. Ek trap ban gaya, jiska nateja ye hai ki aj hum badi matra gehu ka import karte hai. isi vajah se mehngai aati hai, to kahi na kahi badsti mehngai ke peeche subsidy ka bhi bada haath hai. isksa doosra bada nuksaan ye hai ki jo anaj bharat me ugta hai usme nitrogen yani urea ki matra bahut jyada hoti hai, jo insaani sharer ko nuksaan pahuchati hai. ye jal aur environment ko bhi pradooshit karti hai. Aisa nahi hai ki sarkar in sab baton ke liye kuch nahi kar rahi par sarkar ko ye sochna hoga ki jab macro measures ki baat aati hai then you cannot go with single policy, you have to combined a lot of policies to achieve desired results. Aur ye tabhi mumkin hai jab hum policy ke unintentional effects ko bhi dhyaan me lae. Ek udharan hai ke agar country me distribution system acha nahi hai, ya bahut ganda hai to subsidy dene ka fayda hi nahi, jab aap anaj zaroorat ki jagah pe pahucha nahi sakte to produce karke karoge kya. Sarkar ne ek naya plan socha hai jisme bo subsidy company ko nutrients kharidne pe degi na ki fertiliser banana pe. Iim research ki mane to ye acha kadam hai. isse equitable usage hone ki asha jatai ja rahi hai. umeed hai sarkar aise aur bhi ache kadam uthaegi. Dhanyawad. Aapse phir mulaqat hogi.