Subsidies that hurt


Rural subsidies provided by the government are vital, but they have to be better implemented, says Bharat Dogra. Subsidies should be need-based and not be politically motivated sops, which eventually do more harm than good, he argues.

W hile farmers and weaker sections in our rural areas need and deserve subsidies at some levels, a big question is whether subsidies promote their sustainable livelihood or not. Unfortunately, the bulk of subsidies have not gone into the promotion and protection of sustainable livelihoods of farmers.

The story of food and farm subsidies
However, there are also a few examples of rural subsidies which are highly justified and welcome. For example, in this year’s Union Budget, the government has announced a scheme for providing highly subsidised cooking gas to a significant number of rural households from the weaker sections, with the stated objective of protecting rural poor women from indoor pollution and excessive exposure to smoke. This is a good example of a well-justified subsidy. On the other hand, if the same objective is to be achieved by a subsidy for cooking without using any fossil fuel, this would be even more welcome.

The most substantial component of subsidies in India relates to food subsidy and its benefits are shared by rural people along with urban people. In a nutshell, India has a system of paying a fixed procurement price to farmers for foodgrains, and then selling this in ration shops at a cheaper price to deserving consumers. The difference between the procurement price plus handling and storage charges on the one hand, and the selling price on the other hand, is made up by the food subsidy. This is beneficial for farmers as well as consumers.

However, the benefits come down significantly because of poor implementation and corruption. As a result, many farmers particularly small farmers, do not get the proper procurement price, or else have to wait too long and face many avoidable problems. At the other end, genuinely deserving poor households face many difficulties in getting subsidised grain, and several of them simply do not get it.

Yet another problem is that the procurement of foodgrains has been rather heavily concentrated in some areas, itself a result of regional imbalances in agricultural development. This results in huge expenses in storage and transport of foodgrains, which can be reduced to a considerable extent if efforts are made to make all regions self-reliant in producing adequate quantities of staple foods. Then it should be possible to procure not just foodgrains for ration shops, but also all other foods needed for the various nutrition programmes, locally. This will lead to more benefits for farmers, and at the same time, more fresh and better quality food in nutrition programmes as well as in ration shops, without increasing the subsidy.

Another aspect of this subsidy is that some objections have been raised at the World Trade Organisation (WTO). These objections are entirely unjustified, as the sovereign issue of protecting the livelihood of farmers and taking steps to reduce hunger should be strictly kept outside the trade related issues. There has been a lot of debate on fertiliser subsidies as well, and one point emphasised time and again has been that while these subsidies are given in the name of helping farmers, they are actually given to the corporate sector, and it is never known for certainty how much benefit actually reaches the farmers. Apprehensions have been expressed that only a very small part of the benefit may have been passed to farmers, and so alternative means of more directly providing the subsidy to some farmers have been considered.

However, it will be much better both for the sustainable livelihood of farmers as well as for the protection of environment and health if the subsidies given at present for chemical fertilisers, pesticides and other agri-chemicals are used instead in helping the spread of organic farming and providing direct help to organic farmers. If this is done properly, then this can show the path towards significantly reducing the costs, debts and economic stress of farmers, while also protecting soil health and protecting water sources from pollution.

Similarly, in assessing and reforming other subsidies also, the important aspects of sustainability and environment protection should be kept in mind. For example, some state governments have taken highly populist decisions from time to time to provide electricity for agricultural work, either free or almost free, at a highly subsidised rate. This often leads to a tendency of over-extraction of water using tubewells. However, after some time, a very high price is paid by the people and farmers of this region in the form of a sharp decline in the water table. Ill thought-out subsidies which accentuate ecological ruin, and promote non-sustainable use of natural resources, should be avoided.

For example, some state governments have taken highly populist decisions from time to time to provide electricity for agricultural work, either free or almost free, at a highly subsidised rate. This often leads to a tendency of over-extraction of water using tubewells.

One very important aspect of rural development is the need to protect traditional water sources and to improve water conservation efforts at various levels. Wherever good efforts in these areas are taken up, the central and state governments should provide significant subsidies to those Panchayats and other local self government institutions who take up this work.

The creation and setting up as well as actual operation and maintenance of decentralised rural mixed renewal energy systems is another area of very creative and useful work, which deserves to be significantly subsidised by the government at least in the initial stages; apart from its many sided benefits for remote rural areas, this work will help significantly in mitigation of effects of climate change, by reducing the dependence of many villages on fossil fuels.

In such cases, where work helpful for farmers is also very promising from the point of view of climate change adaptation and mitigation, then subsidies can become available not just from the government’s own resources, but also from the substantial international funding that is likely to become available under the plans for tackling climate change. Of course, this funding will also be substantially administered by the government, but the funds will be in addition to the government’s own funds and the routine aid funds.

Hence, it is clear that subsidies can play an important role in guiding rural and farm development along desirable lines, as well as for providing genuine relief to needy and deserving sections, but only if adequate caution is exercised. In the past, often exactly the opposite results were achieved due to misguided government decisions, often taken under undue pressure or influence of powerful interests. One can only hope that more caution and better policies will be able to use subsidies in more beneficial ways.


Bharat Dogra

Bharat Dogra is a Delhi-based freelance journalist, who writes on social concerns.