A STUDY ON SUBSIDY IN CROP AND LIVESTOCK SECTOR WITH ITS IMPLICATIONS ON PUBLIC INVESTMENT AND FARM PRODUCTION
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Date
2020
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Publisher
ICAR-NDRI, KARNAL
Abstract
In order to attain self-sufficiency in agricultural production, the dual strategies followed
in the past were the input intensification and technology development. As a measure to support
and incentivize large section of small and marginal farmers to adopt them, government started
the schemes of subsidies. But the role of subsidies has changed from complementarities to
competitive due to limited capital and resources where government had to draw a trade-off
between invest in infrastructural development and subsidization. In context of this, present
study was conducted with objectives as to estimate the allocation of crop and livestock
subsidies, its trends with public investment and effects at farm household level. The study was
conducted using both secondary and primary data. The subsidies in crop and livestock subsectors
were estimated by considering both direct financial transfers under different schemes
and services, and the indirect subsidy by way of unrecovered costs of providing inputs and
services to the farmers. In order to study the spacio-temporal allocation of subsidy, the
techniques used were growth rates and rank correlation. The relationship between public
investment and subsidies was estimated using co-integration and panel data regression. The
third objective was based on primary data collected from 300 farm households of three states
Haryana, Rajasthan and Odisha selected randomly as per their agriculture development index.
The effect of subsidy on production and demand of farm household was analyzed using
separable Household (HH) model. The estimates of subsidies showed that there was Rs.
201791.39 crores of total agriculture subsidies in TE 2008-09 which increased to Rs. 202628.02
crores in TE 2016-17 registering a growth rate of 0.20 per cent on yearly basis. On an average,
total subsidy per hectare of gross cropped areas was Rs. 10467 during TE 2016-17 with growth
rate of 0.69 %. Crop sector accounted for major share (98 to 99%) in total allocation of
subsidies while the livestock sector accounted for only one to two per cent of the total subsidy.
In component-wise allocation fertilizer, irrigation and electricity subsidies has accounted for
more the 80 per cent of the total subsidy while in livestock sector, veterinary and health services
had the highest share and livestock insurance subsidies had least share. Relationship between
subsidies and ADI of a state depicts that total and crop subsidies per hectare was found to be
allocated in states which were having high index values while allocation of livestock subsidies
was found to be high for states having low ADI scores. Cointegration analysis between GCF
and subsidies revealed that there existed long run relationship between the two. In states, the
results of panel regression between the capital expenditure as dependent variable and the
subsidies exhibited that the amount of subsidy in a state positively influences its capital
expenditure in agriculture. The total agriculture input subsidy received at farm household level
was Rs. 37279 per year with per hectare allocation of Rs. 8730 and the amount of allocation
increased with increase in land holdings. The consumption functions estimates shows that the
one per cent change in price of agricultural commodities leads to less than one per cent change
in demand of agricultural commodities. The HH model showed that the removal of subsidy on
inputs and service is likely to decrease in demand of inputs like electricity, concentrate and
irrigation to the extent of 80 per cent, 73 per cent and 70 per cent, respectively. The removal of
subsidies on all inputs, there was more than 39 per cent decrease in production, consumption
and marketed surplus of agricultural commodities while there was increase in labour supply in
order to earn more. Removal of subsidies of farmers is likely to have serious implications not
only on the production side but also consumption at farm household level. Thus, the subsidies in
crop and livestock sub-sectors need to be phased out in stages and re-allocating the same either
on area or product basis in order to avoid the adverse effects.