How to Avail Agricultural Subsidies?
A subsidy is referred to a grant or other financial assistance given by the government or any other party to another with the motive of development. The Indian government has established many types of subsidies to ensure the welfare of farmers. Some of the subsidies are provided by the central government, while the state government provides others. The subsidies given to the farmers range from irrigation, credits, seed, fertiliser to export and equipment. Categorically the subsidies are divided into:-
1. Input subsidies
2. Price subsidy
3. Infrastructural subsidy
4. Export subsidy
Read below to understand more information about them.
1. Input subsidies
Subsidies are granted by distributing various inputs at lower prices than the prices given in the marketplace. The extent of these subsidies will be equal to the discrepancy between the two prices per unit of distributed input. Following are the myriad of subsidies that are classified under this category:
a. Fertiliser Subsidy
It deals with equal distribution of both cheap chemical and non-chemical fertilisers amongst the farmers. It totals the difference in the price paid to the respective manufacturers (foreign or domestic), and the price that is received from the planters. The central or the union government bears it. The necessity for this subsidy originates from the nature of the pricing policy of the fertilisers by the government.
This subsidy aims to make sure-
- Cheap inputs to the farmers.
- Manufacturers receive reasonable returns.
- Stability in the pricing policy of the fertiliser.
- Availability and accessibility of fertilisers to the farmers.
Following are the schemes under this subsidy-
i. Retention Price Schemes
Under this scheme, the government fixes reasonable ex-factory retention prices for multiple types of fertilisers from various manufacturers. The government reimburses the manufacturers the total cost of production along with a 12% profit margin only if the factory utilises 90 percent of the installed capacity.
ii. Calculation of Fertiliser Subsidy
Under this pricing policy of fertilisers, the agriculturist gets fertilisers at a low predetermined price, also known as maximum selling price or MSP. The manufacturer is compensated with an amount called Retention Price. This cost is fixed at a high level so that manufacturers can cover production costs and maintain a 12% profit margin.
iii. Nutrient Based Subsidy Scheme
The government of India introduced a Nutrient Based Subsidy Scheme in 2010. Under this scheme, a fixed subsidy is declared per KG, based on annual nutrients. A supplementary subsidy is also provided for micronutrients. The government has also included complex fertilisers under this scheme to give the farmers top-notch quality fertilisers based on the soil requirement and crops. Under NBS, manufacturers are allowed to set the MRP. The farmers pay only 50% for Potash and Phosphate fertilisers. The government pays the rest.
b. Irrigation subsidy
Under this subsidy, the government is responsible for providing top-level irrigation facilities to the farmers. It is the difference between the maintenance and operating expenses of irrigation infrastructure in the region and the charges of irrigation recovered from the farmers. It is possible through the provisions of public commodities such as dams and canals which are constructed by the government for free of cost or at low prices for the usage of farmers. The provisions of private yet cheap irrigation equipment like pump-sets also fall under this subsidy.
c. Credit subsidy
It is the discrepancy between the interest of farmers and the actual expense of providing credit and the addition of extra costs such as write-offs of bad loans. Availability of credit is a leading dilemma for poor framers. They have limited cash, which is not enough to nearly enough to approach the credit market. Thus, it is because of the lack of collateral required for loans. Even if the farmers have the required collateral, the farmer is not able to avail of loans. The urban banking institutions usually don't indulge in agricultural credit undertakings as it is considered a risky business. Below are some steps the government can take to tackle this hardship:
- Creating more banking facilities in rural areas to advance more agricultural loans.
- Maintenance of low-interest rates through subsidisation policies and schemes.
- The terms of credit like the collateral requirements to be relaxed or lowered for poor farmers.
d. Power subsidy
This is also known as electricity subsidy, and it implies that the government should charge low prices for the electricity provided to the farmers. Power is mainly used for irrigation purposes. It is a discrepancy between the cost of distributing to and generating electricity for the farmers and the amount received from the farmers.
e. Seed subsidy
Under this subsidy, HYS or High Yielding Seeds is provided by the government at low costs. The research methods and developmental activities to produce such seeds are also funded by the government. The expenditure spent on such progressive researches and inventions acts as a subsidiary for the farmers.
2. Price subsidy
The discrepancy between the cost of food grains at which the FCI procures grains from the farmers and the cost at which the PCI retails it to the traders or the PDS. The disparity between both the prices is the per-unit allowance granted to the farmers by the government. The marketplace price is sometimes low, which is why the farmers experience losses instead of making profits. During such circumstances, the government should promise to buy the crop harvest from the farmers at significantly higher prices than the market. Procurement price refers to the cost at which the government purchases the crops from the growers.
3. Infrastructural subsidy
Private efforts of constructing basic infrastructures in the many sectors of agriculture prove to be insufficient or inadequate to enhance agricultural production. Factors such as extensive storage facilities, informative data about the market, uninterrupted supply of power, and decent roads are necessary for carrying out vital production and sales procedures. These facilities fall under the domain of public welfare and goods because the costs of establishing such facilities are too enormous to be covered by individuals. Furthermore, every cultivator in the region equally benefits from such establishments.
Individual farmers are too cash strapped to provide such facilities for themselves and other fellow farmers because of their inherent difficulties and business-related revenue collections. Thus, the government takes accountability for providing them and uplift the condition of the poor Indian farmers.
4. Export subsidy
It is the subsidy given to the framers to face tough international competition. When any farmer sells his agricultural produce in the international or a foreign market, he earns the profit for himself and also a foreign exchange for his nation. This way, his harvest is recognised internationally, and he also contributes to the country's foreign exchange rates. Therefore, agricultural exports are widely encouraged as long as it causes no harm to the domestic economy.
What Are the Objectives of Agricultural Subsidies?
Farmers are the backbone of our nation, and it is the government's collective duty to uplift them. The objectives of imposing agricultural subsidies are divided into economic and social objectives.
1. Economic Objectives
- Stimulate the production of agriculture.
- Compensation for high transportation costs from the factory or port the farm fields that raise the expenses of inputs.
- To boost the soil quality and take action against soil degradation.
- Making inputs available to all farmers who are poor to buy them, have no access to credit sources, and cannot insure themselves against crop losses.
- Equipping the farmers to try the latest inputs to increase efficiency.
2. Social Objective
Social equity means to distribute income to poor farmers and live in remote areas.
The following subsidies mentioned above have helped many farmers enhance their agricultural production, profits, relieve their burdens and raise their living standards. The government should continue to make such subsidies to motivate and uplift our nation's farmers.
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