Topic: Issues related to direct and indirect farm subsidies and minimum support prices.
6) Financing is of critical concern to the Indian agricultural sector. Discuss how providing interest subvention to small and marginal farmers through Direct Benefit Transfer allows them to get access to institutional credit more efficiently.(250 words)
Why this question:
The recent studies made by RBI found that while livestock, forestry, and fisheries contributed around 38-42% of agriculture output during 2014-16, this sector got just 6-7% of total agriculture credit; clearly, this is an issue that needs addressing. Thus it is important for us to analyse Why it is good idea to give farmers interest-subvention via DBT.
Key demand of the question:
One has to discuss the pros and cons of Interest subvention to deal with the agrarian crisis plaguing the country and in what way it can be bridged by choosing the DBT route.
Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.
Structure of the answer:
In brief define what interest subvention in agriculture financing is.
Explain the following aspects –
Bring out the Positives: Increase of formal loan system, Increase in financial inclusion, Decrease in interest rates of money-lenders, Decrease in farmers distress due to availability of loan for agriculture on lesser rates of interest etc.
Then explain any negatives – Big farmers gets most of the benefit as scheme do not differentiate b/w small and big farmers, Net loan value is more than the entire agriculture input gives sign of diversion of funds, Though net loan value has increased, farmers income goes down, No substantial increase in production etc.
Conclude that An income based policy should be used wherein the money is directly transferred to the farmers Aadhaar linked accounts. This will ensure better targeting and plug leakages. A subsidy income package can be designed on a per hectare basis, with higher rates for small landholders.
Banks must be quickly compensated to prevent overburdening. Budgetary allocations can be improved.