"While subsidies encourage farmers to use new technology, they are a huge burden on government finances". Discuss the usefulness of subsidies in the light of this fact.
"While subsidies encourage farmers to use new technology, they are a huge burden on government finances". Discuss the usefulness of subsidies in the light of this fact.
Subsidy in agriculture means providing some important inputs to farmers at a concession rate i.e., much lower than their market price. During 1960s, in order to ensure Green Revolution, HYV seeds, fertilisers and insecticides were provided at a subsidised rate to the farmers. The following arguments are given to prove the usefulness of subsidies:
(i) It is necessary to give subsidies to farmers, especially the small farmers to provide an incentive for the adoption of the new HYV technology. Any new technology is considered being risky by farmers. Subsidies are, therefore, needed to encourage farmers to adopt the new technology initially.
(ii) Farming in India is still a risky business and subsidies provide protection against the risk of climatic conditions.
(iii) Most farmers are very poor and they will not be able to afford the required inputs without subsidies.
(iv) Subsidies bring about equity between rich and farmers by enabling the poor farmers to use modern technology and inputs.
On the other hand, some economists believe that subsidies should be phased out once their purpose has been served and the technology is now widely adopted due to its profitability. They argue that there is no case for continuing with subsidies as it does not benefit the target group and it is a huge burden on the government's finances.
They give the following arguments against subsidies in agriculture
(i) Subsidies are benefitting the fertiliser industry more than farmers.
(ii) Subsidies are mainly being availed by big farmers in affluent regions, who do not actually need them.
Hence, on the basis of the above arguments, we can conclude that although subsidies are very useful and necessary for poor farmers to overcome uncertainties associated with farming, it may lead to wastage of resources. Thus, it can put an excessive burden on the scarce government's finances. Hence, suitable reforms are needed in order to ensure allocation of subsidies in a targeted manner only to the needy farmers.
Subsidy in agriculture means providing some important inputs to farmers at a concession rate i.e., much lower than their market price. During 1960s, in order to ensure Green Revolution, HYV seeds, fertilisers and insecticides were provided at a subsidised rate to the farmers. The following arguments are given to prove the usefulness of subsidies:
(i) It is necessary to give subsidies to farmers, especially the small farmers to provide an incentive for the adoption of the new HYV technology. Any new technology is considered being risky by farmers. Subsidies are, therefore, needed to encourage farmers to adopt the new technology initially.
(ii) Farming in India is still a risky business and subsidies provide protection against the risk of climatic conditions.
(iii) Most farmers are very poor and they will not be able to afford the required inputs without subsidies.
(iv) Subsidies bring about equity between rich and farmers by enabling the poor farmers to use modern technology and inputs.
On the other hand, some economists believe that subsidies should be phased out once their purpose has been served and the technology is now widely adopted due to its profitability. They argue that there is no case for continuing with subsidies as it does not benefit the target group and it is a huge burden on the government's finances.
They give the following arguments against subsidies in agriculture
(i) Subsidies are benefitting the fertiliser industry more than farmers.
(ii) Subsidies are mainly being availed by big farmers in affluent regions, who do not actually need them.
Hence, on the basis of the above arguments, we can conclude that although subsidies are very useful and necessary for poor farmers to overcome uncertainties associated with farming, it may lead to wastage of resources. Thus, it can put an excessive burden on the scarce government's finances. Hence, suitable reforms are needed in order to ensure allocation of subsidies in a targeted manner only to the needy farmers.
