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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.

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India provides various direct and indirect subsidies to its agricultural sector to support farmers, enhance productivity, and ensure food security. However, these subsidies have drawn scrutiny from the World Trade Organization (WTO) due to concerns about their impact on international trade. Here's an overview of the subsidies and the issues raised by the WTO:

Direct Subsidies in the Indian Agricultural Sector

  1. Minimum Support Price (MSP):

    • Description: The government sets a floor price for certain crops to ensure farmers receive a minimum income and protect them from price fluctuations.
    • Implementation: The Food Corporation of India (FCI) and other agencies procure crops at MSP to maintain buffer stocks and ensure fair prices for farmers.

  2. Fertilizer Subsidy:

    • Description: Subsidies are provided to reduce the cost of fertilizers, making them affordable for farmers.
    • Impact: Fertilizer subsidies have significantly increased the use of chemical fertilizers, contributing to higher yields.

  3. Seed Subsidy:

    • Description: Subsidized quality seeds are provided to farmers to improve crop yield and productivity.
    • Programs: Initiatives like the National Seed Policy promote the use of certified seeds through subsidies.

  4. Irrigation Subsidy:

    • Description: Subsidies are offered for irrigation infrastructure, such as canals, wells, and drip irrigation systems, to ensure water availability for agriculture.
    • Impact: These subsidies aim to enhance water-use efficiency and support drought-prone regions.

  5. Price Support Scheme (PSS):

    • Description: Under PSS, the government procures oilseeds and pulses from farmers at assured prices.
    • Objective: To stabilize market prices and protect farmers from price volatility.

Indirect Subsidies in the Indian Agricultural Sector

  1. Power Subsidy:

    • Description: Electricity is provided to farmers at reduced rates or free of cost to support irrigation and other agricultural activities.
    • Impact: While it reduces input costs, it also leads to overuse of groundwater and energy resources.

  2. Credit Subsidy:

    • Description: Subsidized credit is provided to farmers through schemes like the Kisan Credit Card (KCC), offering low-interest loans for agricultural purposes.
    • Impact: Eases access to finance and encourages investment in agriculture.

  3. Insurance Subsidy:

    • Description: Premium subsidies are offered for crop insurance schemes like the Pradhan Mantri Fasal Bima Yojana (PMFBY) to protect farmers against crop losses.
    • Objective: To reduce the financial risk of crop failures due to natural calamities.

  4. Transportation and Storage Subsidy:

    • Description: Subsidies for transportation and storage facilities reduce the cost of moving and storing agricultural produce, minimizing post-harvest losses.
    • Programs: Schemes like the Gramin Bhandaran Yojana support the creation of storage infrastructure.

Issues Raised by the WTO Regarding Agricultural Subsidies

The WTO has raised several concerns regarding agricultural subsidies in India, primarily focusing on their compliance with international trade rules:

  1. Trade Distortion:

    • Concern: The WTO's Agreement on Agriculture (AoA) aims to reduce trade-distorting subsidies. India's MSP and input subsidies are considered to distort global trade by artificially lowering production costs and influencing market prices.

  2. Aggregate Measurement of Support (AMS):

    • Concern: The AMS refers to the total level of support provided to agriculture. Under the AoA, WTO members must keep AMS within specified limits. India argues that its subsidies are primarily for subsistence farmers and should be exempt, while some WTO members contend that India's support exceeds permissible levels.

  3. Public Stockholding for Food Security:

    • Concern: India maintains large public stockpiles of food grains procured at MSP to ensure food security. The WTO questions whether these stockpiles comply with trade rules, particularly if they lead to surplus stocks being dumped on international markets.

  4. Export Competition:

    • Concern: Subsidized exports can undermine prices in global markets, affecting farmers in other countries. The WTO seeks to discipline export subsidies to prevent unfair competition.

India's Response and Negotiations

  • Peace Clause: India negotiated a "peace clause" at the WTO, allowing it to continue its public stockholding programs without facing legal challenges, provided certain conditions are met.
  • Special and Differential Treatment: India advocates for special treatment for developing countries, emphasizing the need to address food security and rural development concerns.
  • Ongoing Negotiations: India continues to negotiate at the WTO to secure flexibility in implementing subsidies, arguing that they are crucial for the livelihood of millions of small and marginal farmers.

Conclusion

Agricultural subsidies in India play a vital role in supporting farmers and ensuring food security. However, balancing domestic policy objectives with international trade commitments remains a challenge. Ongoing negotiations at the WTO aim to find a middle ground that respects India's development needs while adhering to global trade norms. By addressing these issues, India can enhance the sustainability and competitiveness of its agricultural sector in the international market.

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