Q.14. What are the direct and indirect subsidies provided to farm sector in India. Discuss the issues raised by the World Trade Organization (WTO) in relation to agricultural subsidies. [UPSC 2023 GS P-3]

Direct Subsidies:

Indirect Subsidies:

1. • Direct farm subsidies include support or financial assistance transferred directly into the hands of farmers.
   • Examples include the Farm Loan Waiver Scheme and the PM Kisan Scheme.

2.      Merits of Direct Subsidies:

1. • Targeted Assistance: Direct subsidies directly benefit farmers, providing them with supplemental income.
   • Immediate Impact: These subsidies offer immediate relief and support during financial distress.

3.      Issues of Direct Subsidies:

1. • Budgetary Burden: Direct subsidies can strain government budgets.
   • Equity Concerns: Ensuring equitable distribution of subsidies remains a challenge.
   • Distortion of Market Prices: Direct subsidies can distort market prices and affect competitiveness.

1. • Indirect farm subsidies are inherent in the pricing of inputs such as subsidized seeds, power subsidy, and other forms of support.
   • These subsidies are not provided in the form of cash but indirectly support farmers.

2.      Positive Aspects of Indirect Subsidies:

1. • Input Affordability: Subsidized inputs (seeds, fertilizers, etc.) reduce production costs for farmers.
   • Enhanced Productivity: Access to quality inputs improves agricultural productivity.

3.      Issues of Indirect Subsidies:

1. • Environmental Impact: Some indirect subsidies (such as overuse of fertilizers) can harm the environment.
   • Market Distortion: Overproduction due to subsidized inputs can depress prices and hinder global competitiveness.

WTO Concerns Regarding Agricultural Subsidies:

Trade Distortion and Unfair Competition:

1. • The WTO assesses the Minimum Support Price (MSP) mechanism as trade-distorting, particularly for crops like rice where subsidies have breached prescribed limits.
   • India’s agriculture practices, including overexploitation of groundwater and excessive fertilizer use, are considered environmentally degrading.