Corn Subsidisation

Subsidisation Is a Corny Story!

State intervention and the effects of subsidisation on the corn market.

Government intervention in the corn agricultural market creates major distortions and chaos in India; in fact, it does more harm than good for the industry and for Indian citizens and taxpayers. This essay shall explore the impact of government intervention and subsidies in India, a developing country.

The role that the government plays in a developing country's economy -like India- is huge and has many effects on the outcome and consumption of the goods –and services - produced in the country because the government can impose certain policies with regard to the final product that they want in the country. According to Lipsey and Chrystal's Economics textbook (2007, p55), government intervention on markets is very important as the government of a country can - through subsidisations and taxation - impose criteria for the quality and prices that the producers – in this case corn farmers- are obliged to meet in order to sell their products. For example; a subsidised corn farmer will be expected to produce maize products that measure up to the country's health standards – these can be those outlined by that particular country's department of health- and are sold at a price that is below the price floor setup by the government. State intervention also lessens the number of exports of a country as farmers are not desperate for more and more money to cover up their expenses as a fair portion of their expenses gets covered by the government's subsidy.

One might argue that government intervention on India's agricultural industry is good news for its economic progression as well as for its citizens because it is one of the eight countries that produces 98% of Asia's corn (Erenstein, 2010:1) and subsidisation means that farmers don't export too much corn or charge very high prices. Subsidisation also stimulates economic growth by creating more jobs for the public as the subsidised farmers' ability to hire more labourers to make more useful corn products to sell increases due to the extra funds that they receive from the government through the subsidy (Granberg, 1986:246). Government intervention also reduces the risks associated with entering into the corn market for potential corn farmers as the government's subsidy lessens the value of the investment that an aspiring farmer would have to make in order to get started. This also means that should the market not be profitable for a certain farmer, they lose less capital if they shut down than they would had they not been subsidised. This shows that government intervention in the corn market results in a redistribution of income as its benefits extend to a lot of citizens and not just the farmers who are receiving