THE GIST of Editorial for UPSC Exams : 29 JANUARY 2019 (Investment over subsidies (The Hindu)

Investment over subsidies (The Hindu)

Mains Paper 1: Economy
Prelims level: Subsidies
Mains level: Issues related to direct and indirect farm subsidies and minimum support prices;

Context

•  Government is planning to provide a universal basic income scheme every Indian citizen gets money paid into their bank account.
•  It argues for the removal of all agricultural subsidies, which range from fertilizer subsidies to those on interest, water and power, and distributing the saving among most of the rural population.
•  To its authors, this scheme presents itself as addressing ‘rural’ and not just ‘farm’ distress.
•  To evaluate what is being proposed as a way out of the present agrarian crisis it would be useful to understand what defines it and to recognise the originally intended role for the agricultural subsidy.

Targeting group

•  At its core the agrarian crisis is a case of agricultural activity not yielding enough returns for a section of the farming population.
•  This group is facing a declining farm size due to partitioning across generations.
•  As this population grows the process of fragmentation of the family farm will continue, with succeeding generations staring at a shrinking pie.
•  There are two solutions to this problem
•  One is the obvious one of enabling some members of each household to shift out of farming.
•  The other is to reconfigure public expenditure on agriculture to raise the yield of land.
•  A reconfiguration of public policy is needed to replace agricultural subsidies by capital formation or ‘investment’.

Subsidies VS Public investment

•  For three and a half decades now subsidies have progressively replaced public investment for agriculture.
•  Having once been less than half that of investment it is now five times as large.
•  Evidence points strongly to a case for moving some distance back.
•  The impact of public investment on both the yield of land and rural poverty, encompassing a cohort wider than farmers, is far greater than that of fertilizer, electricity, irrigation and interest rate subsidy.
•  This crucial finding is due to the Sino-Indian team of economists Shenggen Fan, Ashok Gulati and Sukhadeo Thorat.
•  In their study, the investments found most valuable were “educational” and on rural roads.

Way forward

•  The agricultural subsidies that are now found wasteful were designed with a purpose. The plan was to place agricultural production on a sound footing.
•  It envisioned raising the yield of land, which works to generate rising output without inflation and with reasonable profit.
•  The price of food has historically been high for Indians at the bottom of the income distribution.
•  This has held back industrialisation and the desirable shifting of population away from farming to other activities.
•  Even a total elimination of subsidies to enable this transformation via public investment may not be such a bad thing.
•  However its eliminating them merely to implement a universal basic income would be unwise.

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General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) Udyam Abhilasha is a campaign launched by:
A. RBI
B. SIDBI
C. SEBI
D. SBI

Answer: B

Mains Questions:
Q.1) A reconfiguration of public policy is needed to replace agricultural subsidies with investment. Critically examine this statement.