Subsidy Syndrome in Indian Agriculture

The economy-wide analysis of input subsidies in Indian agriculture reveals that subsidies have outlived their aim and have become unsustainable. In order to release resources for higher investments in the agricultural sector, large- scale price and institutional reforms are needed to relieve the pressure of subsidies on the Exchequer. Under the circumstances, it makes much sense to improve terms of trade for agricultre and complement this by stepping up investment in agriculture through reduction in subsidies. The increased investment in agriculture appears to be a better bargain than short-sighted measures such as subsidies. This is because of the fact that cultivable land in India is in short supply and raising productivity per unit of cultivable area will require heavy investments in irrigation, rural infrastructure, research and extension. Also, investments in basic infrastructure correct for regional imbalances and promote greater equity at farm level, while subsidies tend to accentuate inequality.