What is Agricultural Subsidy?

Subsidy means availing some important inputs to farmers at a concessional rate, that is, much lower than its market rate. During the 1960s, in order to adopt new technology of HYV seeds and use modern fertilizers and insecticides, farmers were provided inputs at a subsidized rate. Thus, the public sector role was needed to invest heavily so as to raise the income of people that will, in turn, raise the demand and so on. However, the provision of subsidies in agriculture has remained a debatable issue. The following arguments are given in favor, and against the Agricultural subsidy.

Arguments Given in Favour of Agricultural Subsidy

Provision of subsidy is very important for marginal landholders and poor farmers who cannot avail the essential farm inputs at the ongoing market rate.

Subsidy in the 1960s was basically an incentive for the farmers to adopt modern techniques and vital inputs like fertilizers, HYV seeds, etc. The subsidy was mainly of convincing and lucrative nature so that the farmers do not hesitate to use these modern techniques.

The subsidy is generally provided to the poor farmers with the motive of reducing inequality of income between the rich and the poor farmers and promoting an egalitarian distribution of income.

It is argued that the adoption of new technology and techniques requires huge investment and thereby, poses a risk. Thus, only the daring farmers are willing to adopt them. In such a case, the provision of subsidy by reducing the investment to be made by the farmers encourages the use of new technology and investment.

Arguments Given Against Agricultural Subsidy

It is generally argued that subsidy favors and benefits fertilizer industries more than the farmers. Subsidies provide a protective shield against the market conditions and consequently, these industries need not bother about their market share and competition.

Subsidies are also enjoyed by the potential farmers who do not need them. This often leads to the misallocation and wastage of scarce resources.

It is argued that subsidies if provided at a much lower rate than the market rate may lead to the wastage of resources. For example, subsidized electricity leads to the wastage of energy.

There is a general consensus that in order to assess the benefit and feasibility of a particular technique, a subsidy should be provided, but once the performance has been judged subsidies should be stopped.

Hence, based on the above pros and cons, we can conclude that although subsidies are very useful and necessary for the poor farmers and to overcome uncertainties associated with farming, it puts an excessive burden on the scarce government finances. Thus, proper planning and suitable reforms are required with regard to the agricultural subsidies.

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