Rationale for Subsidies

  • It Stimulate agricultural production.
  • Compensate for high costs of transport from port or factory to farms that raise costs of inputs.
  • Improve soil quality and combat soil degradation (in the case of fertilizer).
  • Make inputs affordable to farmers who cannot buy them, owing to poverty, lack of access to credit, and inability to insure against crop losses.
  • Subsidy in agriculture means providing some important inputs to farmers at a concessional rate that is much lower than its market rate
  • Subsidies bring about equity between rich and poor farmers by enabling the poor farmers to use modern technology and inputs. On the other hand, some economists believe that once subsidies should be phased out since their purpose has been served and the technology is now widely adopted due to its profitability
  • Making basic necessities affordable to poor people through extension of consumer services.
  • To prepare a foundation of various economic sectors in which private sector can participate later. When economy is at lower stages of development, it is often unviable and unaffordable for private sector to step in production.
  • farm subsidies form about two percent of India’s GDP. The total input subsidy per ha forms 18.17% of the farm income per ha, the price support subsidy per ha forms 2.46% of the farm income per ha and the total subsidy to farmers form about 21% of their farm income.