Subsidy in agriculture means providing some important inputs to farmers at a concessional rate that is much lower than its market rate. During 1960s, in order to adopt new technology, HYV seeds and use of modern fertilisers and insecticides, farmers were provided inputs at a subsidised rate. The following arguments are given to prove the j usefulness of subsidies :
(i) It was necessary to use subsidies to provide
an incentive for adoption of the new HYV technology by farmers, especially the small farmers.
(ii) Any new technology is considered as being risky by farmers. Subsidies were, therefore needed to encourage farmers to adopt the new technology initially
(iii) Farming in India is stilt a risky business and subsidies provide hedging agianst the risk of climatic conditions.
(iv) Most farmers are very poor and they will not be able to afford the required inputs without subsidies.
(v) 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. 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 governmente finances.
They give the following arguments against subsidies in agriculture.
(i) Subsidies are benefitting the fertiliser industry more than farmers and it is not making any efforts towards increasing its efficiency as it is protected from market competition by subsidies.
(ii) Subsidies are mainly being availed by big farmers in affluent regions, who do not actually need them.
Hence, based on the above arguments, we can conclude that although subsidies are very useful and necessary for poor farmers and to overcome uncertainities associated with farming, it may lead
to wastage of resources and thus, put an excessive burden on the scarce government finances. Thus, suitable reforms need to be undertaken in order to ensure allocation of subsidies in a targeted manner only to the needy farmers.