Sample Material of Our IAS Mains GS Online Coaching Programme
Subject: General Studies (Paper 3 - Technology, Economic
Development, Bio diversity, Environment, Security and Disaster Management)
Topic: Issues Related To Direct And Indirect Farm Subsidies
5(A) FARM SUBSIDIES
Subsidies and the WTO- Green, Blue, Amber and Red Box
Differentiate between the Green, Blue, Amber and Red Box
Subsidies under the WTO Regime Subsidies have been provided widely throughout
the world, as; a tool for realizing government policies, in such forms as grants
(normal subsidies), tax exemptions, To interest financing, investments and
export credits. There are six primary categories of subsidies, divided by
• Export subsidies,
• Subsidies contingent upon the use of domestic over imported goods,
• Industrial promotion subsidies,
• Structural adjustment subsidies,
• Regional development subsidies,
• Research and development subsidies. By beneficiary , there are two
• Subsidies that are not limited to specific businesses-or industries
(non-specific subsidies), and
• Subsidies those are limited to specific businesses and industries ( specific
Although governments articulate ostensibly legitimate goals
for’ their subsidy programmes, it is widely perceived that government subsidies
rrlay give excessive protection to domestic industries. In such cases, subsidies
act as a barrier to trade, by distorting the competitive relationships that
develop naturally in a free trading system. Exports of subsidized products may
injure the domestic industry producing the same product in the importing
country. Similarly, subsidized products may gain artificial advantages in
third-country markets and impede other countries’ exports to those markets.
Because of this, for industrial goods, the WTO agreements
prohibit export subsidies and subsidies contingent upon the use of domestic over
imported goods, as having a particularly high trade-distorting effect. Even for
subsidies that are not prohibited, it-allows.
Member countries importing subsidized goods to enact
countermeasures, such as countervailing duties if such goods damage domestic
industry and certain procedural re quir e me n ts a recomplied with. For
agricultural products, it requires obligations such as reducing export subsidies
and domestic supports.
The WTO agreement stipulated that the Development countries
would reduce their subsidies by 20% in 6 years and developing, countries by 13%
in 10 years. But/the developed countries mis used this and circumvented this
agreement by providing Green Box Subsidies and Blue Box Subsidies to
In WTO terminology, subsidies in general are identified by
“boxes” which are given the colors of traffic lights: green (permitted), amber
(slow down — i.e. be reduced), red (forbidden).
Fertilizer Subsidies : Issues “with Nutrient Based Subsidy
Nutrient-based subsidy (NBS) scheme was launched in 2010. The
issues with this scheme are as follows:
• There has been unprecedented hike in prices of non-Xtrea
fertilisers after the introduction of NBS scheme.
• It has been suggested that NBS policy shifted be withdrawn and the previous
system of fixed MRP should be restored.
WHAT WENT WRONG WITH THIS SCHEME?
• In India, Urea is the only controlled fertilizer, which is
sold at statutory notified uniform sale price . The Phosphatic and Potassic
fertilizes are under a decontrolled regime and are sold at indicative maximum
retail prices (MRPs).
• The problems faced.by the manufactures in earning a reasonable return on their
investment with reference to controlled prices, are mitigated by providing
support under the New Pricing Scheme (NPS) for Urea units and the concession
Scheme for decontrolled Phosphatic and Potassic fertilizers. The statutorily
notified sale price and indicative MRP is generally less than the cost of
production of the irrespective manufacturing unit. The difference between
the cost of production and the selling price/MRP is paid as subsidy/concession,
• As the consumer ‘ prices of both indigerious and imported) fertilize are fixed
uniformly, financial support is also given on imported urea and decontrolled
Phosphatic and Potassic fertilizers. New Pricing Scheme III or NPS-III for Urea
• Till 2003, the subsidy to urea was under the provisions of the Retention Price
Scheme (RPS). Under RPS, the difference be tween retention price ( cost of
production as assessed by the Government plus 12% post tax return on networth)
and the statutorily notified sale price was paid as subsidy to each urea unit.
Later the RPS regime was dismantled and a Concession Scheme for urea units based
on the prices of feedstock used and the vintage of plants was introduced, which
was called New Pricmg Scheme or N PS. This scheme was introduced from April 1,
2003. It had various phases like NPS-I (2003-2004), NPS-II (2004-2006) and
NPS-III (2006 onwards).
PROBLEMS IN THE NPS
• The problem with this scheme was that the fertilizer
companies started bleeding due to fixed Urea prices and rising cost of Inputs
such as Natural Gas and Naptha. As much as 80% of India’s production of urea is
gas-based. The price of Urea was increased by 10 per cent from 1st April 2010.
After that in October 2012, the government agreed to hike the prices of urea-
based fertilizers by Rs. 50 per tonne. This was the last increase in Urea Price.
With this increase, urea-based fertilizers will now cost Rs. 5,360 per tonne,,
still a lot cheaper than potash and phosphate fertilizers, which cost Rs. 24,000
• Thus we see that Urea is available at such a cheap, price that people not only
started unbalanced use of this fertilizer but a1so Urea was illegally exported
to neighbouring countries. So, the New Pricing Scheme III needed a modification
so that the companies are allowed to hike urea prices and also there can be a
check on the unbalanced use of soil nutrients and reduce government’s subsidy
burden. Earlier, the government had plans to decontrol the urea sector by
bringing it under the nutrient based subsidy (NBS) scheme.
• A committee headed by Planning Commission member Soumitra Choudhary had also
suggested freeing of the sector. But somehow, the political class could not take
bold steps and Urea is still under price control regime.