What are the direct and indirect subsidies provided to farm sector in India? Discuss the issues raised by the World Trade Organization (WTO) in relation to agricultural subsidies. (250 words)

Direct and Indirect Subsidies to Farm Sector in India

  • Direct Subsidies
    • Minimum Support Price (MSP): The government guarantees a fixed price for certain crops, ensuring farmers a stable income.
    • Direct Benefit Transfer (DBT): Cash transfers directly to farmers’ bank accounts, like the PM-KISAN scheme, providing ₹6,000 annually to small and marginal farmers.
    • Loan Waivers: Periodic debt relief measures where the government waives off outstanding loans of farmers.
    • Subsidized Credit: Farmers receive loans at reduced interest rates, lowering the cost of borrowing.
  • Indirect Subsidies
    • Fertilizer Subsidies: Government reduces the cost of fertilizers by compensating manufacturers for selling below market prices.
    • Power Subsidies: Farmers receive electricity at lower rates for irrigation, often leading to over-extraction of groundwater.
    • Water Subsidies: Canal water provided at nominal rates, sometimes leading to inefficient use.
    • Seed Subsidies: High-quality seeds provided at subsidized rates to boost agricultural productivity.

Issues Raised by the WTO in Relation to Agricultural Subsidies

  • Trade-Distorting Support: WTO’s Agreement on Agriculture classifies subsidies that distort trade, and India’s MSP has been under scrutiny for potentially exceeding limits.
    • Amber Box Subsidies: These are considered distorting and are subject to reduction commitments. India’s MSP might fall into this category.
  • Export Subsidies: WTO opposes subsidies contingent on export performance. India’s export incentives for agricultural products have been challenged.
  • Public Stockholding: India’s food stockpiling for food security purposes has been a contentious issue, as it involves procuring food at MSP and might distort trade.
  • Special Safeguard Mechanisms: India seeks provisions to raise tariffs temporarily to deal with import surges or price drops, but it’s a debated topic in WTO negotiations.

Agriculture is the backbone of India, with subsidies playing a crucial role in ensuring food security and farmer welfare. However, global trade rules necessitate a balance between domestic priorities and international commitments. It’s imperative for India to navigate these complexities, ensuring both farmer welfare and adherence to global norms.

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