Farm Subsidies in India From Government

Introduction to the list of Farm Subsidies in India (Agriculture)

Agricultural subsidies are necessary, as the Indian economy is mainly based on the farming sector. Subsidy on fertilizers is given by the Central government whereas subsidy on the water is given by the State governments.

A step by step guide to the list of Agriculture/Farm Subsidies provided in India

The government provides different types of subsidies to farmers like fertilizer, equipment, irrigation, seed subsidy, credit subsidy, export subsidy, etc. Major items of agricultural subsidies are food, irrigation, fertilizer, power, and credit. While fertilizer and food subsidies are borne by the Centre, irrigation and power subsidies are borne by the respective state government.

Farm Subsidies in Indian Agriculture Sector

Subsidies in Indian agriculture are of 4 types;

Explicit Input farm Subsidies in India

Explicit input subsidies are payments made to the farmers to reach a part of the cost of input. These subsidies are like explicit payments made to the farmer. For example, subsidy on improved or high yielding variety seeds, equipment, and plant protection chemicals, improved agricultural implements, and supply of mini kits containing fertilizers, seeds, and plant protection chemicals for certain crops are the explicit subsidies. Explicit subsidies have formed only a small fraction of the development expenditure of State/Central Governments.

Implicit Input Farm Subsidies in India

Even though there is transparency in explicit input subsidies, implicit input subsidies are hidden in nature and the latter arise on account of the mechanics of pricing of inputs. If inputs whose prices are organizationally determined are priced low as compared to their economic cost, it becomes a case of implicit subsidization.

Output Farm Subsidies in India

Subsidies through output pricing mean that by restrictive trade policy, the product prices in the domestic market are maintained at levels higher than those that would have prevailed in the absence of restrictions on trade. Instead, if the trade policies have resulted in maintaining the domestic prices lower than the corresponding border reference price, the policies have taxed the agricultural sector.

Food Subsidies

This apart, there is a significant subsidy related to the agricultural sector and that is the food subsidy. The twin policy of providing market support to the food grains producers and supplying at least a part of the requirement to consumers at reasonable prices, along with the policy of keeping a buffer- stock of required quantity for national food security, involved cost in the form of meeting the differences between the economic cost and issue prices of food grains.

Types of Farm Subsidies in India

Farm Subsidies in India can be categorized under 2 heads;

1. Direct Farm Subsidy

2. Indirect farm subsidy

Direct and Indirect Farm subsidies in India

Agriculture subsidies can also be categorized into indirect and direct farm subsidies taking account of the policy instruments used in providing them. These subsidies involve rendering cash to the recipient farmers. India provides direct subsidies in very limited forms like food subsidy, etc. Though, direct farm subsidies are very common in most of the developed countries.

Indirect farm subsidies are not provided in the form of cash but indirectly supporting the farmers. For example- Providing cash directly to the farmers to buy fertilizers is an example of direct subsidy but subsidizing fertilizer companies to provide cheap urea to farmers amounts to indirect subsidies. Other examples may include-Cheap credit facilities, farm loan waivers, reduction in electricity and irrigation bills, investments in agricultural research, farmer training, environmental assistance, etc. India spends nearly 2% of the GDP in Indirect Subsidies.

Some of the important direct and indirect farm subsidies are;

Food Subsidy

In fulfilling its requirement towards distributive justice, the Government incurs food subsidies and the provision of minimum nutritional support to the poor through subsidized food grains and ensuring price stability in different states are the major objectives of the food security system.

Food subsidy is provided to distribute rice and wheat to the poor and also keep a buffer stock; the difference between the economic cost of food grains and the issue price is reimbursed to FCI.

Irrigation Subsidy

Indian government provides irrigation facilities at the lower rates as compared to the market rates. It is the difference between maintenance and operating cost of irrigation infrastructure in the state and irrigation charges recovered from farmers. This may work through provisions of public goods such as canals, tube wells, dams, etc. which the government constructs and charges no prices or low prices at all for their use from the farmers. It may also be through low-priced private irrigation equipment such as pumping sets.

In India, micro-irrigation subsidy is covered under the Pradhan Mantri Krishi Sinchayee Yojna or PMKSY, to encourage micro-irrigation and promote its benefits through heavier subsidies based on the category of farmers. It mainly aims at relieving farmers off the initial irrigation investment burden to a considerable extent. PMKSY subsidy is a multi-focused plan comprised of 4 elements.

• Accelerated Irrigation Benefit Program – It involves loan assistance to states to help them complete the incomplete major/ medium-sized irrigation projects that were at an advanced completion of the stage, thus accelerating the execution of the irrigation projects.
• PMKSY (Har Khet ko Pani) – This mainly refers to increase the cultivable land area under assured irrigation, and also increase the physical access of water on the farm.
• PMKSY (More Crop per Drop) – The focus here is improving water use efficiency in an organized and focused manner.
• PMKSY (Watershed Development) – This program focuses on prudent utilization of water and land resources, through various mediums such as prevention of soil erosion, increasing crop productivity, and harvesting rainwater, etc.

Through the micro-irrigation subsidy proposition that falls under the Per Drop More Crop element of PMKSY, both state and the central government, on average, contribute to 55% and 45% of the total finances incurred in setting up irrigation systems for small and marginal farmers and other farmers respectively. Nevertheless, state-specific variations exist.

Power Subsidy

The electricity subsidies suggest that the government charges low rates for the electricity supplied to the farmers. Power is mainly used by the farmers for irrigation objectives. It is the difference between the cost of distributing and generating electricity to farmers and the price received from farmers. The State Electricity Boards (SEBs) either generate the power themselves or purchase it from other producers such as NHPC and NTPC. Power subsidy “acts as an incentive to farmers to invest in bore-wells, pumping sets, tube wells, etc.

Fertilizer Subsidy

For sustained agricultural growth and to help balanced nutrient application, it is imperative that fertilizers are made available to farmers at reasonable prices and with this objective, urea being the only controlled fertilizer, is sold at statutory notified uniform sale price, and decontrolled Potassic and Phosphatic fertilizes are sold at indicative maximum retail prices (MRPs).

Disbursement of cheap non-chemical or chemical fertilizers among the farmers. It amounts to the difference between the price paid to the manufacturer of fertilizer and the price, received from farmers, the rest of the burden is bear by the government. This subsidy ensures;

(i) Cheap inputs to farmers,

(ii) Reasonable returns to the manufacturer,

(iii) Stability in fertilizer prices, and

(iv) Availability of fertilizers to farmers in adequate quantity at the requirement.

In some cases, this kind of subsidies is approved through lifting the tariff on the import of fertilizers, which otherwise would have been imposed.

Credit Subsidy

Credit subsidy is the difference between the actual cost of providing credit and interest charged from the farmer, some examples include-government providing interest subsidy on short term crop loans, the cost of writing off bad loans, etc.

Export Subsidy

An export subsidy is given to the farmers to face international completion. When an exporter or farmer sells agricultural products in a foreign market, he earns money for himself, and also foreign exchange for the country. So, agricultural exports are commonly encouraged as long as these do not harm the domestic economy. Subsidies provided to encourage exports are mentioned as export subsidies.

Agriculture/Farm Infrastructure Subsidy

Private efforts in several areas do not prove to be sufficient to improve agricultural production. Good roads, power, storage facilities, information about the market, transportation to the ports, etc. are vital for production and sale operations. These facilities are in the domain of public goods, the costs of which are huge and whose benefits accrue to all the cultivators in an area. No individual farmer will come forward to provide these facilities because of their bulkiness and inherent problems related to revenue collections. So, the government takes the responsibility of providing these, and given the condition of Indian farmers a lower price can be charged from the poorer farmers.

Subsidy for organic farming in India

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Paramparagat Krishi Vikas Yojana (PKVY) is a sub-component of the Soil Health Management (SHM) scheme under the National Mission of Sustainable Agriculture (NMSA) aims at the development of models of excellence in organic farming through a mix of traditional wisdom and modern science in value chain mode to install sustainability, ensure long term soil fertility buildup, and healthy food grown through organic practices without the use of agrochemicals. Paramparagat Krishi Vikas Yojana also aims at empowering farmers through institutional development through clusters for not only in farm practices management, input production, quality assurance but also in value addition and direct marketing through innovative means.

Organic Area Selection Criteria;

a) Organic farming under PKVY will be promoted preferably in hilly, tribal, and rain-fed areas where utilization of chemical fertilizers and pesticides is less and the area has good accessibility for developing market linkages.

(b) Cluster approach will be adopted in large patches of up to 1000 ha area.

(c) The cluster chosen shall be in a contiguous patch, as far as possible, maybe extending over a few adjacent villages (but not over large areas in sparsely distributed villages).

(d) The ceiling of subsidy a farmer is eligible will be for a maximum of one hectare. In a cluster, there should be at least 65% of small and marginal farmers. Women farmers/ SHGs should be given preference.

Subsidies for Sericulture Farm in India

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Sericulture is the Silkworms rearing along with the cultivation of Mulberry for silkworm food. Silk is the raw product of the Sericulture Industry. While the demand for Silk in overseas and India is high and increasing rapidly. Hence you should Start Sericulture and also, the Profits in silkworm rearing are high. Below are the subsidies and schemes for Sericulture Farming.

Many farmers are unaware of schemes and loans for sericulture farming. Central and states government are providing several schemes to increase the silk production in the country. Banks and NABARD also give loans for silkworm rearing.

NABARD Loan for Sericulture Farming;

To encourage farmers and to boost the Sericulture Industry, NABARD is providing loans to the eligible candidates. Though, to get the loan from NABARD, one should visit the nearby bank and get the loan sanctioned. In this way, Banks with support from NABARD providing loans for Sericulture Farming.

Indian Government subsidy for the construction of cold storages

Government for the construction of cold storages under the following schemes;

• Under the scheme of the National Horticulture Mission, support is provided for the development of post-harvest infrastructure including construction of cold storages.
• National Horticulture Board is executing the scheme of Capital Investment Subsidy for construction/ modernization /Expansion of cold storage and storage for horticulture produce, under which assistance is provided for construction/ modernization /Expansion of cold storages.
• National Horticulture Board – Setting up cold storage and cold storage modernization are eligible for assistance under the NHB Scheme of Capital Investment subsidy for construction/ modernization /Expansion of cold storage for Horticulture Products.
• Agricultural and Processed Food Products Export Development Authority (APEDA) provides support under the scheme of Infrastructure Development for setting up of integrated pack houses with cold storage facilities.
• Ministry of Food Processing Industries provides support for cold chain infrastructure development including that of cold storages under the scheme for Value Addition, Cold Chain, and Preservation Infrastructure.
• National Horticulture Mission – Cold storage up to 5000 MT capacity are eligible for support under the open-ended scheme of NHM. The support is extended as subsidies to credit-linked projects at 35% of the capital cost of a project in the general area and 50% in the case of Scheduled and Hilly area.
• Small Farmer Agri-Business Consortium (SFAC) assistance to cold storage – Setting up of cold storage as a part of an integrated value chain project are eligible for subsidy provided the cold storage component does not exceed 75% of TFO (Total Financial Outlay).

Best government subsidies in agriculture for farmers

Some of the most useful and popular government subsidies in India;

Pradhan Mantri Krishi Sinchai Yojana (PMKSY)

The PMKSY is to ensure access to some means of protective irrigation to all agricultural farms in the country – to produce ‘per drop more crop. Thus, bringing much desired rural prosperity. PMKSY is strategized by focusing on an end-to-end solution in the irrigation supply chain that means distribution network, water sources, efficient farm level applications, extension services on new technologies and information, etc. based on the comprehensive planning process at the district/state level.

PM-Kisan Scheme

Pradhan Mantri Kisan Samman Nidhi Yojana is an initiative of the Government wherein 120 million small and marginal farmers of India with less than two hectares of landholding will get up to Rs. 6,000 per year as minimum income support. 

Rashtriya Krishi Vikas Yojana (RKVY)

In this scheme, the government offers a 100% subsidy depending on the ongoing project. Further, aims to support the advancement of the farming sector. Also, this is a state plan scheme that is the state official committee grants the subsidy is verifying the farmer’s proposal. Moreover, the governments initiated this as a part of the National Agriculture Development Programme. Despite other segments, it focuses on, it significantly works on Agriculture Mechanization. Extra information is available on the scheme’s official portal.

National Food Security Mission (NFSM)

This scheme is for improving the machinery instead of their purchasing. Further, this scheme aids in maintaining machines such as tractor, tillers, and so on in good condition. Therefore, increasing the productivity on the farm. Even though, it’s main aim was to increase productivity, it assists several clusters to attain the aim. Accordingly, one such cluster that was immensely benefited from the scheme was machines that aid the cultivator. Furthermore, details regarding this scheme are available at the official portal.

Soil Health Card Scheme

The Soil Health Card scheme gives information to farmers on the nutrient status of their soil along with recommendations on the appropriate dosage of nutrients to be applied for improving soil health and its fertility.

NABARD Farm/Agriculture loans in India

This scheme offers every farmer. Chance to purchase required machines, importantly tractors. However, they expect a down payment of 15% of the tractors or machinery cost. However, NABRAD provides 30% of the cost as a subsidy for tractor and 100% for other transport machinery.

Common Objectives of Subsidiary Schemes Promoting Machineries;

• To adapt newer and faster machines
• Also, to facilitate machine purchasing
• Helping to reduce the cost of cultivation
• Moreover, to ensure the timeliness of cultivation timing
• Primarily, to improve the livelihood of the farmers

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