The numerous indirect subsidies to agriculture have, in many ways, triggered the decay of the sector. Many of them are subverted and misused, and their benefits seldom percolate to the small farmer. Then, there is the issue of their social and environmental sustainability. On the sidelines of a conference on subsidies and the Indian agrarian crisis in Mumbai last week, Mint’s Sukhmani Singh spoke to Amar Nath H.K., senior economist with the National Institute of Public Finance and Policy, and an expert on government subsidies. Excerpts:
Conservative estimates say the government’s subsidy bill to agriculture has soared from around Rs500 crore 25 years ago to more than Rs40,000 crore today. Is that correct?
It depends on how you define a subsidy. If you think of a direct incentive to the end user, the figure is correct. But if you include the costs involved in delivering subsidies, it is an underestimation. The government spends a lot of money on extension and training and agriculture education, which does not really reach the poor. It is a cost to the government which is not recovered either by agricultural productivity, or by (benefits to) farmers or society at large. If you take into account all the indirect costs, this figure would be roughly at least 30% more.
Have power and irrigation subsidies helped farmers?
Only 50% of the power subsides were used by farmers mainly in the food belts such as Punjab and Haryana. Even here they did not get assured and good quality of power, and subsisted mainly on diesel gensets.
Irrigation subsidies were mainly used for canal irrigation, which is characterized by inefficiency and unregulated cropping patterns.
Unlike tank irrigation, canal irrigation is dominated by leakages, inefficiencies and escalation of costs due to protracted delays. Farmers were supposed to rotate cultivation between highly water-consuming crops and those that consume less water. But they did not do that. In states like Punjab, for instance, the soil became saline because of excessive use of water.
Over the years, various committees have submitted recommendations on fertilizer subsidies. What has happened to all these?
Starting from 1950, around 50-60 committees have submitted recommendations. Many of them focused on two critical issues other than prices—intervention to change the cropping pattern and conducting soil-testing facilities to check the deficiencies in various regions before applying a particular fertilizer. Their recommendations were not followed in toto.
Fertilizer subsidies are indirect and their benefits accrue more to manufacturers and large farmers. They also resulted in degradation of the soil as crop rotation was neglected. The recommendation for extension and training was ignored. But strangely, there are no subsidies for organic manure.
There is an issue which demands serious investigation—the classification of fertilizer companies, which is non-transparent and a complete mess. Many companies are artificially inflating their costs to get the maximum subsidy.
So, did subsidies help or harm agriculture in India?
The green revolution helped increase foodgrain production, but subsidies to irrigation, power and fertilizers, and the minimum support price, motivated farmers to move from other crops into production of wheat and paddy. They stopped cultivating other crops such as millets and maize, which were well suited to cultivation in dryland areas.
Which states are the worst offenders with regard to leakage of subsidies?
Almost all states are bad. Some such as Punjab, Haryana, western Uttar Pradesh and the coastal states at least benefited from them and increased production, while others could not.
There is maximum leakage in the northern Indian states. Sadly, the Northeastern states, which required subsidies the most, could not utilize them.
Some people advocate giving direct cash subsidies to farmers. Do you agree?
No. Take the instance of Karnataka, where the height of the Almatty dam was increased and the displaced were given separate land and cash (compensation).
None of them occupied the houses they were given, they spent the cash and now they are steeped in poverty again. They didn’t use the houses because they were built on graveyards, and they could not use the land because it lacked irrigation facilities.
Despite the heavy outflow of subsidies, how have states managed to reduce their fiscal deficits so dramatically?
Their main aim was to reduce their revenue deficits. This could be done either by reducing their unproductive expenditure or salaries.
They could not do the former as it was welfare oriented. So, they went in for reduction of manpower and salary and wages, especially in the health and education sectors, which has resulted in the weakening of services.