Study Shows Farm Subsidy Slippage

Displaying an enormously fast growth since 1980, the total quantum of agricultural subsidies have swollen to four times the public investment in this sector. However, the entire amount of these subsidies was not going to the farmers.

This has been concluded by a study sponsored by the Rajiv Gandhi Institutute for Contemporary Studies (RGICS). The input subsidies as a ratio of public investment increased from 84 per cent in 1980-81 to a whopping 377 per cent in 1992-93, it points out.

If some of the input subsidy expenditure had gone as investment into agriculture, the imiplication for agricultural growth would have been tremendous, says the paper prepared by the noted economist S Mahendra Dev, resident fellow of the RGICS.

 

The paper also concludes that the bulk of the subsidies on fertiliser, power, irrigation and credit have been cornered by richer states, well-irrigated areas, growers of certain crops and rich farmers.

It refers to an estimate made by experts to establish that a substantial part of the subsidies do not go to the farmers. Of the total fertiliser subsidy, for instance, only 52 per cent (average figure between 1980 and 1992-93) went to the cultivators. The rest might be going to the fertiliser industry or its feed stock agencies. Therefore, a significant payment of the subsidy appears to be a transfer payment to inefficient fertiliser manufacturers, the paper says.

Referring to the power subsidy, it points out that cross subsidisation takes care of some of the losses due to agricultural sector.

Besides, power subsidies are over estimates because there are no meters in many states to indicate the power consumed by agriculture. The unmetered supply of electricity to the agricultural sector is being misused to cover very high transmission and distribution losses and pilferage.

The paper, however, maintains that farm subsidies are crowding out the public investment and they are not sustainable at any level of governance. The decline in public investment is attributed to diversion of resources from investment to current expenditure in the form of subsidies, it says and adds: reducing these subsidies suggests itself as a source of finance for public investment in agriculture.

At the same time, the paper points out that it may be difficult, in the short tun, to remove all the subsidies. The process of reduction of subsidies will have to be a gradual, steady and judicious one.

There is a general consensus that excessive subsidy causes more negative impact which more than neutralises any incidental beneficial effects which, in turn, are hardly sustainable.

The subsidies, therefore, should be gradually phased out to enable the farmers get used to doing without them, it recommends.