GS Paper 3
Syllabus: Indian Economy and related issues/ Issues related to Direct and Indirect Farm Subsidies
Source: DTE
Context: A new World Bank report highlights the negative consequences of inefficiently subsidising agriculture, fishing and fossil fuel sectors.
Highlights of the report:
- Subsidies in the 3 areas (generally considered to bail out economies in crises) exceeded $7 trillion, equivalent to 8% of the global gross domestic product (GDP).
- In 2021, countries shelled out $577 billion to actively lower the price of polluting fuels such as oil, gas, and coal.
- Agricultural subsidies (over $1 trillion globally) are targeted at farmers for buying specific inputs or growing particular crops.
- However, these subsidies tend to favour wealthier farmers, even when programs are designed to be targeted to reach the poor.
- The fisheries sector receives 35.4 billion per year in subsidies and about $22.2 billion contributes to overfishing.
Negative implications of subsidies:
- Exacerbate climate change: For example, fossil fuel subsidies incentivise the overuse of fossil fuels → lead to air pollution → high health burden.
- Dwindling fish stocks.
- Inefficient subsidy usage: It is responsible for ~17% of all nitrogen pollution in water in the past 30 years → Health impacts reducing labour productivity by up to 3.5%.
Positive implications of reducing subsidies: For example, a US$0.10 per litre increase in the average annual retail price of diesel may be associated with a decrease of 2.2 μg/m3 in the average annual concentration of PM2.5.
Challenges:
- Demand for energy is less responsive to prices.
- Cleaner alternatives are not easily accessible and are sometimes not affordable.
Way ahead:
- These subsidies could be repurposed to finance just transition activities or to provide a better quality of life, as they have far-reaching impacts on the environment.
- Diverting these subsidies to the financial allotments made towards commitments made under the 2015 Paris Agreement.
- Ensuring the availability and affordability of clean technologies, addressing information and capacity constraints, and addressing behavioural biases are ways to increase the effectiveness of subsidy reform.
Conclusion: There is an urgent need to redirect these subsidies to unlock significant funds for sustainable purposes.
Insta Links:
Understanding Subsidies in India
Mains LInks:
In what way could replacement of price subsidy with Direct Benefit Transfer (DBT) change the scenario of subsidies in India? Discuss. (UPSC 2015)
