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Various Subsidies In India.

Under various subsidies in INDIA:   

Soil Health Cards

The Soil Health Card scheme was launched by the Government of India in February 2015. Under the various subsidies in India scheme, the government plans to issue soil cards to farmers, which will carry crop-wise recommendations of nutrients and fertilizers required for the individual farms to help farmers improve productivity through judicious use of inputs. All soil samples are tested in various mobile soil-testing labs across the country.

Thereafter, the experts will analyse the strength and weaknesses (micronutrients deficiency) of the soil and suggest measures to deal with it. The results and suggestions will be displayed on the cards. The government plans to issue subsidies in India through cards to 14 crore farmers.

  • Overuse of water: Fertilizers require water in order to penetrate deep into the soil. As a result, overuse of fertilizers requires overexploitation of water resources, which further leads to problems of water scarcity.
  • Soil poisoning and health hazards: Chemical fertilizers cause soil poisoning, which leads to harmful effects on people who consume the crops grown in that soil. Moreover, the groundwater and nearby canals also get polluted, which further leads to health problems among the local population.

On account of all these factors, there is a need to rationalize fertilizer subsidy in India.

Fuel Subsidy in India

Under various subsidies in India types of fuels widely consumed are petrol, diesel, liquefied petroleum gas (LPG), and kerosene.

  • Petrol subsidy: Among the fuel subsidies, petrol subsidy was the first to be withdrawn. Rise in petrol prices is borne by the owner of automobiles, who are middle and upper classes of the society and have the capacity to bear hike in prices.
  • Diesel subsidy: Diesel is used for transportation of goods. Thus, increase in diesel prices on account of withdrawal of diesel subsidy was expected to result in overall price rise in the economy.

However, diesel subsidy was putting burden on government finances. As a result, the government finally withdrew diesel subsidy in 2014. Low international crude oil prices facilitated the withdrawal of diesel subsidy.

  • LPG subsidy: If LPG subsidy is withdrawn, many poor households would not be able to afford LPG cylinders and as a result would shift to wood, cow dung cakes, or kerosene stoves for cooking.

The government, thus, continues to provide LPG subsidy. However, certain reforms have been taken. There is a restriction on the number of subsidized cylinders (at present 12 per year). Earlier, the cylinder was available at subsidized rates. Now, a cylinder is purchased at the full rate but subsidy is credited to the bank account of beneficiary. This step has eliminated wrongful claim of LPG subsidy to a large extent.

Moreover, taxpayers with an annual income of more than ₹10 lakh are not eligible for subsidized LPG.

  • Kerosene subsidy: Kerosene is used mainly by the poor for a variety of needs such a lighting, cooking, etc. At present, kerosene is made available to the poor at subsidized rates through fair price shops (public distribution shops).

Analysis of subsidies distributed across various sectors reveals that the share of food subsidies has been the highest since 2013. Presently, half of the total subsidy goes to food.

Subsidy of petroleum has varied over time on account of fluctuating oil prices. Moreover, it has reduced in the recent times because the government has withdrawn subsidy on petrol and diesel.

The subsidy on LPG has reduced to a large extent because it is now available to households with income below ₹10 lakh. Moreover, the government has eliminated wrongful claim of LPG subsidy through the use of Aadhaar.


Introduction of high-yield variety seeds in the 1960s as part of Green Revolution required critical inputs. Moreover, these critical inputs were to be made available at low rates.

The important critical inputs constituting bulk of agriculture subsidies are fertilizers and water. Fertilizer subsidy is borne by the central government. It has already been discussed in this chapter.

Water subsidy in India is borne by the state governments. The state government either arranges for canal irrigation or provides power subsidy to draw underground water. The costs of arranging water resources are high, and farmers are poor. Thus, water subsidy is essential. However, certain problems arise on account of water subsidy.

Issues Related to Water Subsidy

  • Overexploitation of water resources: Farmers have a belief that the greater the amount of fertilizers and water they apply on crops, the greater the agricultural output would be. Thus, farmers tend to overuse water resources, and water subsidy facilitates overexploitation of water resources.

Overexploitation of water resources has multiple consequences. It leads to depletion of groundwater. Further, overexploitation in the absence of proper drainage mechanism leads to water logging in fields.

The excess water in the field evaporates and leaves salts behind. These salts make the soil impermeable. As a result, groundwater does not recharge, leading to desertification of land.

  • Huge financial burden on states: Power subsidy to draw underground water poses a huge financial burden on state finances. State electricity boards bear heavy financial losses.
  • Cross subsidization: It is the practice of charging higher prices to one group of consumers to subsidize prices for another group. To provide power subsidy to agriculture, the state governments levy high charges for electricity usage on industry and households. This high levy erodes the profitability of industry and makes it uncompetitive.
  • Faulty cropping pattern: Sometimes farmers draw underground water to undertake cultivation of water-intensive crops even in water-starved regions. Faulty cropping pattern further deteriorates the underground water level.
  • Defective method of calculating power subsidy to agriculture: Power subsidy is estimated on residual basis, i.e. after deducting the metered consumption to other sectors out of the total power supplied. As a result, transmission and distribution losses and power thefts are accounted as a part of subsidy to agriculture.

Green Revolution

Green Revolution was a period when there was a large scale increase in agricultural productivity. Green Revolution allowed developing countries, like India, to overcome shortage of food grains and become self-sufficient. It started in the early 1960s in Punjab, Haryana, and Uttar Pradesh and led to increase in crop production.

The introduction of high-yielding varieties of seeds and the increased use of chemical fertilizers and irrigation led to Green Revolution in India.

High-yielding varieties of wheat were developed by scientists, including American agronomist Dr. Norman Borlaug, Indian geneticist M. S. Swaminathan, and others. Wheat varieties were taken from Mexico. Similar wheat varieties were developed under various subsidies in India. The high-yielding varieties of other crops were also developed under various subsidies in India.

However, Green Revolution has brought certain negative consequences:

  • Use of chemical pesticides and fertilizers have led to soil poisoning, high consumption of water, and high subsidies by both central and state governments.
  • High consumption of water has led to decline in the water table, desertification of fertile land, and high power subsidy to draw water from lower depths.
  • High-yielding varieties were available in limited crops. The government also undertook other measures to promote these crops, such as MSP. Consequently, Indian agriculture is dominated by a few crops only. Horticulture and floriculture are at nascent stage in Indian agriculture in various subsidies in India.


under various subsidies in India,

Operation: The Food Corporation of India (FCI) is the main agency that has the responsibility of procurement, storage, movement, transportation, and distribution of commodities.

The FCI is assisted by various subsidies in India by state agencies in carrying out its responsibilities of procurement, storage, and distribution, whereas transportation of commodities is undertaken with the help of railways. Procurement of commodities is done at MSPs. The procured commodities are distributed through fair price shops.

The basic objective of PDS is to make available essential consumer goods at subsidized prices to insulate consumers from rising prices of commodities and maintain minimum nutritional status of population.

Commodities covered by PDS

In addition to food grains, many other necessary items such as edible oils, sugar, coal, kerosene, and clothes are also distributed through PDS. The most commonly distributed items under PDS are rice, wheat, sugar, and kerosene. Together, these four items account for 86% of commodities distributed through PDS.

Coarse grains (jawar, bajra, maize, etc.) do not figure in PDS as their distribution is less than 1% of the total distribution under PDS. Pulses, an important source of protein, have a share of less than 0.2% of the total distribution under PDS.

National Food Security Act, 2013

The National Food Security Act, 2013, was passed to make access to food grains under PDS a legal right.

  • The act covers 67% of the total population and recognizes their legal right to food. Of this percentage, 75% will be identified from rural areas and 50% from urban areas. The actual beneficiaries will be identified by respective state governments.
  • The beneficiaries will be entitled to rice, wheat, and coarse cereals at the rate of ₹3, 2, and 1, respectively, per kg subject to 5 kg per person and 25 kg for one household. State governments can provide additional items and more subsidies according to their will.
  • The act requires PDS reforms such as use of Aadhaar card for the identification of beneficiaries, computerization of the PDS system, etc.
  • To improve the status of women, the act requires replacement of existing ration cards with new ration cards in the name of an adult woman of the household.

PDS reforms are being undertaken to implement the National Food Security Act, 2013. The implementation of the act has been delayed because of the problems in identification of actual beneficiaries.

Why PDS Reforms Are Required? 

The PDS system in India has been plagued by many problems:

  • In the past, only local residents were eligible for PDS benefits because ration cards were issued on the basis of residence only. As a result, migratory labour and poor without residential address were denied benefits of PDS. Presently, ration cards are issued on the basis of Aadhaar (unique identity number). Beneficiaries with these ration cards can obtain subsidized commodities throughout the country.
  • Limited benefits to poor: In the past, it is estimated that for every rupee spent by the government, less than 22 paisa reached the beneficiary. This was because there was large-scale diversion of commodities from the PDS to the open market. To plug the loophole, commodities under PDS can be obtained by using biometrics. Biometrics are difficult to be forged as against the signatures used in the past.

Moreover, earlier commodities were available to above poverty line (APL) and below poverty line (BPL) at 70% and 50% of MSP, respectively. Often, APL community members did not exercise their PDS allotments, and these allotments were diverted to the open market. Now, APL members have been taken out of PDS.

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