Explain the difference between direct and indirect farm subsidies and also mention their merits and demerits.

The farm subsidies cost approximately 2.5-3.0% of our GDP and account for over 1/5th of total farm income.

Direct and indirect subsidies:

• Direct farm subsidies include support/ subsidy transferred directly into farmer’s hands.
• Whereas, indirect farm subsidies are inherent in the pricing of inputs such as subsidized seeds, power subsidy, etc.

Merits:

1. Crucial to secure farmer income:
   • Farm size in India – less than 2.6 acre per capita.
   • Farmer income less than 7000 (average).
2. Smart Agriculture:
   • Require judicious use of resources and adequate mechanisation.
   • Need for scale neutral technology – e.g. Happy seeder, custom hiring center.
3. Promote food security:
   • Subsidy is also means to influence cropping pattern, choice of crop.
   • g. In 1960s, MSP for wheat and rice.
4. Environment sustainability:
   • Nutrient benefit scheme – promote non-urea nutrient based fertilizer.

Demerits:

1. Ecological threats:
   • g. Heavy use of urea (under highly controlled & subsidized framework).
2. Distortion in market functioning:
   • g. Subsidy in power in states like Punjab & Haryana – heavy dependence on groundwater extraction for crops like wheat and paddy.
3. Huge cost to exchequer and high opportunity cost.
4. Less incentive for optimal use of resources like community points, zero budget natural farming.

Recent initiatives like PM-KUSUM and KISAN-SAMMAN aimed towards direct benefit transfer in ecological & economically sustainable processes are the key to checking short-sighted distorted subsidiary mechanism.