Authors: Ankita Kailas Shelka, Kamlesh Kumar
Abstract: The central tool of agricultural policy in India is the government subsidies that aim to stabilize the farm incomes, promote the uptake of technology, minimize agricultural risk and enhance food security. However, subsidies also have a tendency to pervert the input decisions, increase disparities between irrigated and rainfed areas, and hasten environmental pressure, in particular, groundwater drainage and nutrient unequal distribution. This paper summarizes the peer-reviewed findings on the role of major subsidy channels (i.e. input subsidies (fertilizer, power, irrigation equipment and mechanization), (ii) risk subsidies (public procurement/price incentives: crop insurance premium support), (iii) price support (crop insurance premium support), and (iv) transfer-type subsidies (direct benefit transfers and targeted rebates) in influencing the outcomes of farmers in India. The paper builds a cohesive conceptual framework based on the characteristics of subsidy design (targeting, conditionality, delivery mechanism) and the farmer response (input intensity, crop choice, investment and risk management) and subsequently to economic outcomes (yields, profits and volatility) and resource outcomes (water extraction, soil health and emissions). The synthesis suggests that subsidies tend to increase adoption and short-run production, although the effect depends largely on the farm size, access to irrigation, and market connectivity. Regressive incidence is typical where the benefits are proportional to land, pump ownership or access to procurement. It has also been demonstrated that redesign, the shift of price distortion to medium-specific, meter-specific, or performance-specific incentives can maintain welfare of farmers and decrease fiscal and ecological expenses. Implications on policy include (1) improved targeting at smallholders and susceptible areas, (2) moving to output-based subsidies instead of open-ended input price subsidies (efficiency, resilience) and (3) combining water-energy governance with subsidy institution.
