Why in NEWS
The Vice President highlighted that direct transfer of agricultural subsidies could significantly increase farmer incomes. He estimated that each farmer could receive at least ₹35,000 annually if subsidies were provided through direct benefit transfer (DBT) instead of indirect channels.
Key Terms/Concepts/Incidents Simplified
| Key Term | Simple Explanation |
|---|---|
| Agricultural Subsidy | Government aid provided to farmers to reduce the cost of farming inputs or ensure a minimum return on produce. |
| Direct Benefit Transfer (DBT) | A system where cash is directly deposited into farmers’ bank accounts to replace price subsidies on inputs like fertilizers and seeds. |
| PM-KISAN | A central DBT scheme where ₹6,000/year is given to eligible farmers in three instalments. |
| MSP (Minimum Support Price) | Guaranteed price at which the government procures certain crops to protect farmers from market fluctuations. |
| NBS (Nutrient-Based Subsidy) | A scheme where subsidies are provided based on the nutrient content (N, P, K, S) of fertilizers. |
| PMFBY | Insurance scheme that protects farmers against crop loss due to natural calamities, pest attacks, etc. |
| Shanta Kumar Committee | A 2015 government panel that recommended reforms in MSP and PDS systems, including shifting to DBT. |
| WTO Subsidy Limits | Under WTO rules, developing countries can offer farm subsidies up to 10% of the value of production, but India often exceeds this. |
| Power Subsidy | Free/subsidized electricity to run irrigation pumps, mainly in states like Punjab and Haryana. |
| Green Subsidy | A reoriented form of subsidy that promotes environmentally sustainable practices like micro-irrigation, organic farming, etc. |
Key Points of the News
- Types of Agricultural Subsidies in India:
- Direct Transfers: PM-KISAN, KALIA, Rythu Bandhu.
- Input Subsidies: Seeds, Fertilizers (like Urea, DAP), Power, Irrigation.
- Credit & Insurance Subsidies: PMFBY, Interest Subvention Scheme.
- Price Support: MSP, Bhavantar Yojana.
- Infrastructure Subsidies: Cold Storage, Warehouses (subsidized by NHB).
- Consequences of Current Subsidy Model:
- High fiscal burden – ₹3.71 lakh crore allocated in Union Budget 2025–26.
- Soil degradation from fertilizer overuse; NPK imbalance.
- Groundwater depletion from free power and inefficient irrigation.
- Market distortions due to MSP favoring select crops/regions.
- Export issues due to WTO subsidy violations.
- Advantages of Replacing with DBT:
- Better targeting, transparency, and farmer autonomy.
- Reduces overuse of inputs and improves subsidy efficiency.
- Limitations of DBT:
- Exclusion of farmers without documentation.
- Risk of misuse and digital access issues.
- Suggested Reforms:
- Targeted DBT with geo-tagging.
- Market-responsive MSP reform.
- Promote green subsidies and crop diversification.
- Invest in post-harvest infrastructure near farms.
- Shift to WTO-compliant subsidies (research, extension, infra).
- Conclusion:
A reformed system focused on efficiency, equity, sustainability, and WTO alignment will secure farmer incomes and national food security.
Visual: Types of Agricultural Subsidies in India
plaintextCopyEdit Agricultural Subsidies
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Direct Benefit Input Credit & Output Infrastructure
Transfers Subsidy Insurance Support Subsidies
(PM-KISAN) (Fertilizer, (PMFBY, (MSP, (Cold Storage,
Seeds, KCC Loans) Bhavantar) Warehouses)
Irrigation)
In a Nutshell: Memory Code — “SIP COP WIG”
Use the mnemonic “SIP COP WIG” to recall types of subsidies:
- S – Seed Subsidy
- I – Irrigation Subsidy
- P – Power Subsidy
- C – Credit Subsidy
- O – Output Subsidy (MSP)
- P – Post-harvest Subsidy
- W – Warehouse & Cold Storage
- I – Insurance (PMFBY)
- G – Green/Direct Transfer (DBT)
Prelims Questions (Medium Difficulty)
Q1. Consider the following statements:
- The Nutrient-Based Subsidy (NBS) scheme is applicable only to urea-based fertilizers.
- PM-KISAN and Rythu Bandhu are examples of direct benefit transfer schemes in agriculture.
- Bhavantar Bhugtan Yojana offers direct procurement of crops at MSP.
Which of the above statements is/are correct?
a) 2 only
b) 1 and 3 only
c) 1 and 2 only
d) 2 and 3 only
Q2. Which of the following are classified as input subsidies in Indian agriculture?
- Fertilizer Subsidy
- MSP
- Irrigation Subsidy
- Power Subsidy
Select the correct answer using the code below:
a) 1 and 2 only
b) 2, 3 and 4 only
c) 1, 3 and 4 only
d) 1, 2, 3 and 4
Q3. With reference to agricultural subsidy reforms, consider the following statements:
- The Shanta Kumar Committee recommended replacing grain distribution with cash transfers.
- WTO allows India to give farm subsidies up to 20% of the total value of agricultural production.
Which of the statements given above is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Mains Questions
Q1. Critically examine the role of agricultural subsidies in India’s farm sector. Do you agree that replacing them with Direct Benefit Transfers (DBT) can solve the inefficiencies of the current model?
Q2. The system of Minimum Support Price (MSP) needs reform, not rejection. Discuss in the light of market distortions and farmer protests in India. (PYQ 2021)
Prelims Answers Table
| Q No | Answer | Explanation |
|---|---|---|
| Q1 | a) 2 only | NBS is not for urea; it’s for non-urea fertilizers. Bhavantar provides compensation, not direct MSP procurement. |
| Q2 | c) 1, 3 and 4 only | MSP is an output subsidy, not an input subsidy. Fertilizer, irrigation, and power subsidies are input subsidies. |
| Q3 | a) 1 only | India has a 10% subsidy cap under WTO rules (not 20%). Shanta Kumar Committee did recommend cash transfers instead of grain distribution. |
