Farm Subsidies

Notes

Farm subsidies are Government support that lowers the cost of inputs or raises the income of farmers.

Types and major schemes

Fertiliser subsidy: Nutrient Based Subsidy (NBS) for phosphatic and potassic fertilisers (since 2010); urea is sold at a fixed low price, with the Government paying the gap; neem-coated urea (2015), nano urea, and the PM-PRANAM scheme (2023) to encourage balanced and reduced use of chemical fertilisers.
Credit: the Modified Interest Subvention Scheme (an interest subsidy on short-term crop loans up to ₹3 lakh with a prompt-repayment incentive) and the Kisan Credit Card (limit raised to ₹5 lakh in Budget 2025-26).
Insurance: PMFBY (2016): farmers pay 2% (kharif), 1.5% (rabi) and 5% (commercial and horticulture crops) of the premium.
Income support: PM-KISAN (2019): ₹6,000 a year in three instalments to farmer families; State schemes such as Rythu Bandhu (Telangana, 2018) and KALIA (Odisha, 2018).
Power and irrigation: electricity subsidies by States; PMKSY; solar pumps under PM-KUSUM.
Mechanisation and seeds: SMAM; subsidised seeds.
Price support: MSP and procurement (Topic 265).

Issues

Imbalanced fertiliser use (too much urea compared with phosphorus and potash; the ideal NPK ratio is about 4:2:1) and soil degradation.
Groundwater depletion from free or cheap power; subsidies that favour richer, larger farmers and certain crops; the fiscal burden; leakages and diversion of urea.
Crowding out of public investment in agriculture.

Reforms: DBT in fertilisers, the Soil Health Card, direct income support in place of input subsidies, and the rationalisation of power subsidies.

WTO angle: the Agreement on Agriculture limits trade-distorting domestic support (Amber Box, with a de minimis limit of 10% of production value for developing countries); India's MSP-based rice procurement raises questions about this limit, and the Peace Clause (2013) gives India temporary protection.

Key Points

Main subsidies: fertiliser (NBS, urea), credit, insurance, power, PM-KISAN.
Issues: imbalanced fertiliser use, groundwater depletion, fiscal cost.
Reforms: DBT, income support, Soil Health Card.
PMFBY premium: 2% kharif, 1.5% rabi.
WTO: Amber Box limits; Peace Clause.

MCQs

Q1. Under PMFBY, the farmer's premium for kharif foodgrain crops is: (a) 1.5% (b) 2% (c) 5% (d) 10% Ans: (b).

Q2. The PM-KISAN scheme provides an annual income support of: (a) ₹2,000 (b) ₹4,000 (c) ₹6,000 (d) ₹10,000 Ans: (c).

Q3. Urea in India is sold: (a) At a market price (b) At a Government-controlled price with a subsidy (c) Only through imports (d) Without any regulation Ans: (b).