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Efficacy of subsidy to farmers, rich or poor, has been a long and important matter of controversy among economists and policy makers not only in India but also in most countries of the world. In India many experts believe in lessening subsidy to agriculture and instead enhancement of investment in sectors related to agriculture, education and R&D in countries like India. Recently, Dr Ashoke Gulati and Prerna Tewari have written in a national media to show how expenditure in education and R&D can give better results in developing the agriculture sector in the country.

Gulati and Tewari showed how subsidy in irrigation, fertilizer, power in agriculture, crop insurance, agricultural credit, etc. has actually been wrongly and over utilized in many cases and has done harm and created inefficiencies in agricultural sector. The better situation of agriculture would have come had the government spent more on agricultural R&D and education, building roads and other infrastructure.
Noticeably, public capital formation in agriculture declined from 3.9% of agri-GDP in 1980-81 to 2.2% in 2014-15. But it recovered a bit in 2016-17. They have also cited estimates found by the joint study by OECD and ICIER that shows the expenditure on agri-related R&D, education, road construction and other infrastructure is 5 to10 times more powerful in alleviating poverty or increasing agri-GDP than similar expenditure on subsidies.

The issues on MSP

The Narendra Modi government has declared MSP (cost plus 50%) in 22 mandated crops. It may be thought of as the saviour of farmers but it has been a failure except in two commodities like paddy and wheat. At present, the market prices of as many as 9 crops including pulses and cereals are less than 20%-30% lower than their MPSs. The experts think that even if the implementation part of the MSP system is very weak one cannot ignore the MSP. In a recent interview in a national media, Himanshu, associate professor, Jawaharlal Nehru University, New Delhi, reiterated that we should have favoured MSP because food prices were for the last three months, in the negative territory. If one looked at the wholesale index, the price collapse of a lot of crops was not due to international impact. Himanshu thinks that “it is a much deeper crisis of decline in demand in rural areas and it requires a multitude of efforts in terms of raising prices”. The most important of all which Himanshu pointed out was declining real wages in rural sector. In that situation MSP can somehow arrest the decline of prices of agricultural crops. In the long run MSP may not be an effective solution. Himangshu thinks that the MSPs have been the procurement prices only. That is not at all a support price of the farmers.

The policy to subsidize agricultural labourer

The effectiveness of the subsidy system is controversial. The biggest beneficiary of agricultural subsidy is farmers, a section of industrialists, etc. But the agricultural labourers are not at all benefited by the system. It is already pointed out that the real wages of the rural or agricultural workers are declining. Additionally, one AIARLA (All India Agricultural and Rural Labour Association) representative told the reporter that in India on an average an agricultural labourer gets a job a maximum of 45 days per year. Therefore the agricultural worker has to seek jobs in other sector for his livelihood. This is why they should be protected from low wages. Sudipto Bhattacharyay, professor, Viswa Bharati University told the reporter that there were many studies suggesting negative revenue of farmers in many cases in India. Opportunity of employment in agriculture is falling. These cause all grave concern not only for the rural economy but also the Indian economy as a whole. Therefore India needs to implement subsidy to rural agricultural workers as soon as possible.