Farm subsidies in India driving agriculture:
- Ever since the beginning of the Green Revolution in the mid-1960s, India has been supporting its farmers through input subsidies and minimum support prices of important crops.
- In 2018-19, the farm subsidy bill amounted to Rs 2.56 lakh crore, which is equal to about 8.5% of the agricultural GDP (or about Rs 18,000 per hectare of the net sown area).
- Subsidies on power, fertilisers and price support, respectively, account for 40%, 30% and 10% of the total expenditure on subsidies.
- These incentives have immensely contributed to increases in agricultural productivity, farm incomes and food supplies.
Negative effects of farm subsidies:
- There are many issues with the current subsidy system in agriculture.
- It is excessively cereal-centric.
- It is causing deterioration to groundwater, soils and the environment.
- It is also aggravating income disparities (between various classes of people and between regions). It is mostly the large farmers in the irrigated regions who cultivate paddy and wheat who benefit more from farm subsidies.
- WTO scrutiny:
- Moreover, India’s farm subsidies have come under the scrutiny of the World Trade Organisation (WTO) for these being in excess of the permissible limit.
Need change in agri incentive structure:
- The issue of farm subsidies is complex, and once provided, it is difficult to withdraw these subsidies for political reasons.
- Nonetheless, the concerns with farm subsidies listed above highlight the need for devising an incentive structure that can minimise the trade-off between efficiency and sustainability of the agricultural production systems.
Agriculture also provides ecosystem services:
- Agriculture, besides providing food and non-food commodities, generates a number of visible and invisible, direct and indirect services, known as ecosystem services.
- Ecosystem Services are the benefits people derive from ecosystems.
- They can be classified into:
- Provisioning services (food, feed, fodder, fuel, raw materials, herbal medicines)
- Supporting services (nutrient cycling, soil retention, enhancing soil fertility, genetic diversity, supporting biodiversity, etc)
- Regulating services (water recharge, water cycling, pollination, biological pest control, carbon sequestration, climate regulation, etc)
- Cultural services (recreation, religious and cultural values, R&D, etc)
Incentivising ecosystem services provided by agriculture:
- One possible way out of current farm subsidies is to incentivise farmers for the ecosystem services they provide to the society through agriculture.
- Except the provisioning services, the other services that agriculture provides are non-tradable, and their contributions have remained unvalued.
- For example, the biological nitrogen fixation by leguminous crops that improves soil fertility, reduces greenhouse gas emissions and also lowers the cost of production are ecosystem services that are not valued enough.
- Similarly, organic agriculture provides a number of ecosystem services that benefit the society in many ways.
- Supporting and regulating agricultural practices that provide these ecosystem services is essential for sustainable development of agriculture.
- There is also a need to provide economic incentives to farmers for the ecosystem services they provide to the society through agri-practices.
Benefits of this:
- Agriculture is inherently a risky enterprise, and farmers’ frequent exposure to climatic shocks. Compensating farmers for the ecosystem services they provide to the society is useful in the absence of adequate institutional risk-management mechanisms.
- Farmers provide a range of non-marketable ecosystem services that are public goods and are available to the society at no cost. The compensation to farmers for ecosystem services will encourage them to adopt practices that optimise the use of land, water and other inputs, and reduce the cost of production.
For this, mechanism is needed to make valuation of the ecosystem services:
- Monetisation of ecosystem services is a challenge because of the lack of scientific evidence on the bio-physical parameters needed for their valuation.
- Once the valuation mechanism is created, it is possible to transform farm subsidies as an economic package of ‘payment for ecosystem services’.
Example of Telangana:
- The government of Telangana recently took the initiative to link the existing direct benefits transfer to the farmers under the Rythu Bandhu Scheme with the adoption of desired cropping pattern and agricultural practices.
- This is a step in this direction.
- Initially, governments can provide direct benefits (arbitrarily decided) for some of these ecosystem services.
- The private sector can be involved to finance such schemes to ensure that the services on which their business depends are not at the risk of disappearance.
- This can set the path for incentivising agriculture for the ecosystem services they provide leading to adoption of more and more sustainable practices