Smarter Subsidies


The Syngenta Foundation and the Indian Council for Research on International Economic Relations (ICRIER) are conducting a study to measure the amount of support channeled into the agricultural sector and find ways to rationalize the subsidy so as to bring efficiency and sustainable growth in agricultural production. The study focuses on understanding the many complexities of a range of existing subsidies, and their delivery mechanisms and impact, and tries to suggest policy measures that can address the deficiencies and issues.

Reforming agriculture for faster, inclusive, and sustainable growth is critical for India in order for it to provide food, fodder, and fiber for a large and growing population of 1.25 billion. Such a large country has to produce much of its food requirements domestically, in a manner that is globally competitive and environmentally sustainable. The agricultural sector contributes the least to India’s GDP (around 18%) but it is the sector that absorbs almost half of the workforce. The average size of an Indian farm holding is just 1.15 hectares. 85% of its land holdings, cultivating about 44% of the area, belong to the category of small and marginal farmers with less than two hectares of land. Also, because an average household still spends about 45 percent of its expenditure on food (NSSO, 2011), food price volatility impacts everyone. The World Development Report of 2008 revealed that one percent growth in agriculture was at least two to three times more effective in reducing poverty than the same growth coming from non-agricultural sectors.

All this speaks of a much higher priority that needs to be accorded to Indian agriculture as far as public resources and policies are concerned. It is with this view that Syngenta Foundation and the Indian Council for Research on International Economic Relations (ICRIER) proposed to undertake a study on 'Supporting Indian Farms the Smart Way. The objective of the study is to measure the amount of support channeled into the agricultural sector and find ways to rationalize the subsidy so as to bring efficiency to agricultural production. The task of rationalizing subsidies is not easy since any movement toward that goal receives a huge political response. Hence, the study makes a sincere effort to understand the many complexities of the sectors and tries to suggest policy measures that can address them.

The following key issues are addressed in the study:

1. What are the main components of subsidies to agriculture? How did they behave over time? We examined the period from 2000 to 2011 for a detailed discussion. (2011 is the latest year for which relevant subsidy data are available). 

2. What is the situation regarding agricultural support in some other selected countries? Did other countries’ support pattern change over time? Are developed countries really bringing down trade-distorting support? What is the magnitude of India’s product-specific and non-product-specific support?

3. What is the role of these subsidies in helping the agricultural sector?

4. What are the main problems in input sectors?  What are the price policies of the inputs and how have they led to inefficient use of resources and thus environmental consequences?

5. How can a widespread crop insurance policy and faster crop loss assessment and settlements of compensation improve the situation for a typical farmer? What is the international experience in this field?

6. How did public investments in agriculture behave over time? How does public investment compare with input subsidies in recent times? What are the marginal returns to agriculture from subsidies and investments?

7. What about China’s agricultural subsidy policy and its implications for India?

The study is based on the collation and analysis of relevant information from various sources, including the government at the central and state levels. Analytical methods also employ some econometric modeling to find out the marginal rates of return of the public resources going to agriculture.  Policy analysis is based on best practices within the political realm of the concerned state and/or country.

New book released

"Supporting Indian farms the Smart Way" is an academic book published by Academic Foundation in association with ICRIER, co-edited by Ashok Gulati, Marco Ferroni and Yuan Zhou. The book looks at the input subsidies and public investments in Indian Agriculture with a view to rationalizing public expenditure in such a way that India gets the biggest return in terms of reducing poverty and propelling agriculture growth from every million rupees spent. It notes with concern that the public investments in Indian agriculture as a percentage of agricultural GDP has declined from 3.9 percent in 1980-81 to 2.2 percent in 2014-15, while input subsidies as a percentage of agricultural GDP have increased from 2.8 percent to around 8.0 percent over the same period. But marginal returns of investments on agricultural growth and poverty alleviation are 5 to 10 times higher than that of input subsidies. Based on the analysis, international best practices in relevant sectors and review of policies, the book recommends how to rationalize subsidies that can help India to achieve higher agri-GDP growth, faster poverty reduction while ensuring judicious use of precious resources like soil and water.

Studies and publications