Report on Impact of Subsidy on Agriculture

Report on impact of subsidy on agriculture

INTRODUCTION

Fertilizer subsidies have come to account for around 45% of the total subsidies. They have influenced the use of fertilisers in the Indian agriculture industry as well as increased the productivity of land under cultivation.

“Among the crops, rice and wheat are major consumers of fertilisers, accounting for over half of the total subsidy (with rice receiving 32.2 per cent of the total ,wheat a 20.3 per cent , followed by sugarcane at 6.3 per cent and cotton receiving 5.9 per cent of the total share of subsidy in 2001-02)” (Vijay Paul Sharma, 2009)

However, days of the fertiliser subsidy in its present form seem to be numbered. Talks are on to slash the subsidies to improve the fiscal deficit and provide direct payments to farmers.

Use of fertilisers in India increased greatly with the ushering in of the Green Revolution in the 1960s. This can be attributed to the fact that productivity of the newer varieties of food grains developed during the green revolution responded positively to the use of chemical fertilisers which led to an increase in the consumption of fertilisers from 784,000 tonnes during 1965-66 to 1539,000 tonnes during 1967-68 (Ramesh Chand, 2008) [Exhibit 1]. The oil crisis of 1970s led to a steep increase in the import prices of fertilisers which led to the creation of the first fertiliser subsidy in 1977 by the Marathe Committee Report under the Retention Price Scheme. Under the scheme, benefits reach the farmers by way of setting of Maximum Retail Price to the farmers. The difference between costs of production plus distribution and the retail price is footed by the government towards the input sector thus, providing fertilisers at a lower price to the farmers.By way of subsidies, the government aimed to

• provide farm inputs at lower costs to increase the use of fertilizers to improve productivity

• lower cost of inputs would lead to a lower cost of outputs, i.e., food grains

• provide incentives to the input industry to produce fertilizers and decrease imports

• provide a buffer to the farmers from variations in input costs

The report aims to study the various issues pertaining to agriculture that have been and are likely to be affected by fertiliser subsidies.

State Wise Fertiliser Consumption

An increasing trend is observed in the intensity of fertiliser subsidy for every state in [Exhibit 2]. Hence, it can be inferred that the fertiliser subsidy is utilized all over the nation with positive returns every year. According to the exhibit, the states of Punjab, Andhra Pradesh, Haryana, Tamil Nadu, West Bengal and Uttar Pradesh have