Syllabus: Problems related to indirect and direct farm subsidies and minimum support prices
Context and Overview
- Budget 2026 discussions focus on rationalising food and fertilizer subsidies through an expanded PM-Kisan framework.
- Combined subsidies account for nearly 8.5 percent of total Union Budget expenditure.
- The objective is improving efficiency, environmental sustainability, and fiscal prudence in agricultural support systems.
Definition and Rationale for Reform
- Agricultural subsidies provide financial support for inputs and price stability through fertilizers, power, and MSP.
- The current blanket subsidy model encourages excessive urea use and soil nutrient imbalance.
- Skewed incentives favour cereals over pulses and oilseeds, affecting nutrition security.
- Environmental impacts include soil toxicity and groundwater contamination in intensive farming regions.
Trends and Fiscal Data
- Combined food and fertilizer subsidy for FY 2025–26 stands at ₹3.71 lakh crore.
- Food subsidy alone reaches ₹2.03 lakh crore, covering 813 million beneficiaries.
- Fertilizer subsidy is ₹1.67 lakh crore, the second-largest budgetary subsidy component.
- MSP payouts have tripled to ₹3.33 lakh crore by June 2025.
- Import dependence remains high, with 90 percent potash and 60 percent phosphate reliance.
Importance of Subsidies
- Subsidies ensure food security under NFSA and PMGKAY for vulnerable populations.
- Input support shields farmers from global fertilizer price volatility and supply disruptions.
- Targeted incentives encourage crop diversification toward pulses and oilseeds.
- Financial assistance promotes agricultural mechanisation and climate-resilient irrigation practices.
Reform Initiatives
- Digitalisation of PACS improves transparent credit delivery across nearly 80,000 societies.
- Nutrient-Based Subsidy expansion promotes balanced fertiliser usage with fortified grades.
- PM-PRANAM scheme incentivises states to reduce chemical fertiliser dependence.
- Direct Benefit Transfers under PM-Kisan reach 11 crore farmers, reducing leakages.
Challenges Identified
- Excessive urea subsidies distort the ideal 4:2:1 NPK nutrient ratio.
- Subsidies consume nearly 10 percent of the Union Budget, limiting R&D investments.
- India approaches the WTO Amber Box 10 percent de minimis limit.
- Benefits remain regionally concentrated in procurement-heavy states.
- Fertiliser diversion persists, with 20–25 percent leakage into non-agricultural sectors.
Way Forward and Conclusion
- Consolidating subsidies into higher-value DBT under PM-Kisan can improve targeting.
- Integrating urea into NBS regime encourages balanced fertilisation and sustainability.
- Shifting expenditure toward WTO-compliant Green Box investments strengthens long-term productivity.
