For Indian farmers, Direct Benefit Transfers can work better than fertilizer subsidies

Technological innovations, along with price support measures and the supply of subsidized key inputs like irrigation, fertilizer, and electricity, have played an important role in the growth of Indian agriculture. These support measures have led to a sizable increase in the area under cultivation and output of cereals in Punjab and Haryana. The procurement of food grains at pre-announced prices, followed by their distribution to consumers at highly subsidized rates through fair price shops, was perceived as an accomplishment towards stabilizing prices, achieving farmers’ welfare, and ensuring food security across the country. This deliberate attempt to keep commodity prices low and compensate farmers for the loss by charging them input prices below market prices continues—though, of late, eyebrows are being raised on the effectiveness and efficiency of this particular policy instrument.

Photo: Divya Pandey/IFPRI