While subsidies encourage farmers to use …

Subsidy in agriculture means providing some important inputs to farmers at a concessional rate i.e., much lower than their market rate. It is an economic benefit (direct or indirect) by the government to the farmers. They're a safety net and a risk management tool whose purpose is to ensure a stable and affordable food supply, given that farmers have no control over the price of their crops or the weather. Subsidies are given to the farmers to provide an incentive for the adoption of new technology by farmers in general and small farmers. During the 1960s, in order to ensure the Green Revolution, HYV seeds, fertilisers and insecticides were provided at a subsidised rate to the farmers. It has been rightly said that subsidies encourage farmers to use new technology but they are also a huge burden on government finances.
The following arguments are given to prove the usefulness of subsidies:

1. It is necessary to give subsidies to farmers, especially the small farmers to provide an incentive for the adoption of the new HYV technology. Any new technology is considered being risky by farmers. Subsidies are, therefore, needed to encourage farmers to adopt the new technology initially.
2. Farming in India is still a risky business and subsidies provide protection against the risk of climatic conditions.
3. Subsidies bring about equity between rich and poor farmers by enabling poor farmers to use modern technology and inputs.
4. Most farmers are poor and they will not be able to afford the required inputs without subsidies.

On the other hand, some economists believe that subsidies should be phased out once their purpose has been served and the technology is now widely adopted due to its profitability. They argue that there is no case for continuing with subsidies as it does not benefit the target group and it is a huge burden on the government’s finances.
They give the following arguments against subsidies in agriculture:

1. Subsidies are benefiting the fertiliser industry more than farmers.
2. Subsidies are mainly being availed by big farmers in affluent regions, who do not actually need them. Rich farmers are taking advantages of subsidies. The target group is not being benefited.
3. The object of giving subsidies was to provide an incentive for the adoption of new technology by farmers in general and small farmers in particular. Now new technology has been widely adopted, so subsidies should be phased out.

Hence, on the basis of the above arguments, we can conclude that although subsidies are very useful and necessary for poor farmers to overcome uncertainties associated with farming, it may lead to wastage of resources. Thus, it can put an excessive burden on the scarce government’s finances. Hence, suitable reforms are needed to be undertaken in order to ensure allocation of subsidies in a targeted manner only to the needy farmers.