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Day 44 – Q 2. Do agricultural subsidies have a distorting effect in free markets? Illustrate.

2. Do agricultural subsidies have a distorting effect in free markets? Illustrate.

क्या कृषि सब्सिडी स्वतंत्र बाजारों में एक विकृत प्रभाव उत्पन्न करता है? उदाहरण देकर स्पष्ट करें।


Agricultural subsidies is a fractional amount of government incentives paid to farmers, agribusinesses in order to supplement their income, manage the supply of agricultural commodities and influence the cost and supply of such commodities.

WTO provides three types of subsidies in which Amber box subsidy is most trade distorting while other two – green box and blue box are not.


Though it is a good measure to address the plight of the farmers, it can also have an adverse effect in the free markets, which can be highlighted as follows-
1) Subsidies directed by the United States government, particularly to corn farmers, can have a spill over affect in developing countries like India. Subsidies granted to the farmers of developed countries are way higher than that given to Indian farmers, thus it can cause distortion to the domestic market of domestic markets as well.
2)Fertilizers subsidy, as an input for agriculture production, is responsible for rampant use of fertilizers, commonly the triad NPK, in India. This acts as a barrier for entry to the developed market like European Union who held that India’s agricultural products are not up to the mark of WTO’s phytosanitary measures.
3)While the developing countries like India and China are not in an affordable position to breach the de-minimus level of Aggregate measures of support(AMS), developed countries like US provides subsidies exceeding 50% in some products such as Canola, cotton, sugar and more than 200% for wool.

  1. Most benefits of subsidies are allotted to big farmers while In India,2/3 rd farmers are marginal farmers which can’t utilize the benefit of subsidy properly. Thus the value of produce of such farmers decrease.
  2. It leads to overproduction of one crop(grains) over other(like fruit, pulses). Thus sometimes grains are piled up for rotting in warehouse. Also in market, the trade of such cereals take place on the expanse of other non- subsidised products.

For eg. The recent trade war between United and China is also the political consequences of the ill effects of subsidies, provided by a particular nation haphazardly. Therefore, complete compliances with the WTO mandated de-minimus level for both developed and developing countries have to committed by all parties.


However, agricultural subsidies are necessary to the extent that they secure the interests of the farmer, the consumer, the nation and the environment. As such, rationalizing agricultural subsidies to secure this delicate balance ought to be an ongoing exercise. The recent steps like Ryutu Bandh scheme of Telangana and KALIA scheme of Odisha in this regard are good measures.

Best answer: Being better

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