Cover Image
close this book Agricultural policy in India: need for a fresh look (1992)
View the document Contents
View the document Abstract
View the document Introduction
View the document Target group
View the document Policy instruments
View the document Organisation structure
View the document High-value labour-intensive enterprises
View the document Development of dry land agriculture
View the document Subsidies on agricultural inputs
View the document Support prices for farm produce
View the document Food subsidies and exports
View the document Agricultural research and extension
View the document Training in modern agriculture
View the document Professional management
View the document Concluding remarks
View the document Acknowledgement
View the document References

Subsidies on agricultural inputs

Subsidies amount to loss of revenue to the government (in the form of government expenditure) and gain to both farmers (in the form of producer’s surplus) receiving the subsidies and consumers (in the form of consumer’s surplus from cheaper farm commodities) of commodities produced by recipients of the subsidies. A simple rule of thumb that can be used by the government to determine whether to grant subsidy or not is to compare loss of revenue and gains to producers (farmers) and consumers from the subsidy. If the gains exceed the loss, there is a rationale for the subsidy in question. Besides, those activities which generate higher social benefits than private gains, and those which involve some risk should also be subsidised. Such activities include soil and water conservation measures, collective action for eradication of pests and diseases, newly released high yielding varieties of crops, afforestation of degraded private and public lands, pisciculture in common property ponds, etc.

Fertilisers and irrigation water are two of the farm inputs that are heavily subsidised at present; the latter indirectly by pricing it lower than its real resource cost. Gulati (1990: 1-11) examined the issue of fertiliser subsidies in relation to the prices of major crops such as rice, wheat and cotton and found that "farmers have been ‘net-taxed’ through pricing of fertilisers and crops". Singh (1992) argues that irrigation subsidies are justified because it is unethical to penalise irrigators by charging them high water rates based on real resource costs which are abnormally high due to widespread inefficiency and mismanagement in Irrigation Departments. What is needed, in our opinion, is both an improvement in efficiency and management and rationalisation of the water pricing policy. It is also true that quite a lot of so-called farm subsidies go to the private industries and public undertakings manufacturing farm inputs to cover up their inefficiency and mismanagement.

The existing policy of subsidies on agricultural inputs needs to be reviewed and its direct and indirect impacts on different categories of farmers carefully assessed. There is a lot of evidence to show that quite a significant proportion of subsidies is leaked out and that most of the amount of subsidies is cornered by the big and rich farmers. There is, therefore, a need to streamline the delivery system and to ensure that the benefits from subsidies are widely and equitably distributed.

Pricing of Canal Water

The existing (subsidised) prices of canal water and the system of charging on the flat per ha basis have led to many problems such as highly water intensive cropping patterns, wastage of water due to over-irrigation and lack of cleaning and desilting of watercourses and field channels, water-logging, salinity etc., in canal command areas. There is a need for pricing canal water as close to its full real resource cost as possible considering its productivity and for volumetric measurement of the water supplied. Whereas volumetric measurement of water supplied to water users’ co-operatives has been successfully tried in some command areas such as the Ukai-Kakrapar command area in south Gujarat, pricing of canal water at its full cost has not yet been done anywhere in the country. This seems to be a highly politically sensitive issue but in the interest of using our scarce water resources judiciously this hard decision must be taken now and enforced throughout the country. The wasteful use of water and inappropriate cropping patterns could be avoided by deepening the canals below the ground-level so that all farmers in the command areas have to lift water from the canals as has been done in Egypt. This will make water costlier and more energy-intensive than at present and, therefore, the irrigators would use it more judiciously, and more command area can be covered with the same amount of water. This would also reduce the problems of seepage and water-logging and inequitable distribution of water between head-reaches and the tail-ends of canal systems. This method may be tried in some of the new projects like the Narmada project. Besides, as we mentioned earlier, there is also a need for improving efficiency and management in Irrigation Departments so that the cost of supplying water could be kept low.

All these measures could be implemented more cost-effectively if the farmers are first educated and made aware of their benefits and are then organised into water users’ associations as has been done in the Ukai-Kakrapar command area in south Gujarat. Water could be sold to such associations on volumetric basis and the associations could be given the responsibilities of distribution of water, maintenance of watercourses, collection of water charges from irrigators and payment to the Irrigation Department, and enforcement of appropriate crop patterns.