What are the direct and indirect subsidies provided to farm sector in India? Discuss the issues raised by the World Trade Organization (WTO) in relation to agricultural subsidies.

Model Answer


The Government provides agricultural subsidies accounting for 2% of the GDP and 21% of farm income to support farmers, enhance productivity and ensure food security.


DIRECT SUBSIDIES are financial incentives provided by Government directly to the farmers in the form of price support, income support etc.

  • PM-KISAN provides cash transfer to farmers.
  • Minimum Support Price (MSP): If the market prices fall below MSP, the Government purchases crops to support farmers.
  • PM-KUSUM provides for Installation of solar pump sets.
  • PMKSY provides micro-irrigation.
  • PMFBY provides crop insurance.
  • Agriculture Infrastructure Fund provides subsidies on post-harvest infrastructure such as cold chains, collection centers etc.
  • Credit subsidy in the form of Interest rate subvention on short term crop loans.
  • Farm loan waivers

INDIRECT SUBSIDIES are provided in the form of reduced input prices or indirect support to farmers in form of:

  • Fertilizer Subsidy: Urea Based Subsidy Scheme and Nutrient based Subsidy (for P&K Fertilizers).
  • Electricity subsidy
  • Water subsidy
  • Capital support to seed companies.
  • Export subsidies in form of transport assistance.

Issues raised by WTO:

  • MSP: India’s Implementation of NFSA has led to increase in trade distorting Amber box subsidies beyond 10% of the value of production in 1986-88. 
  • Public Stockholding of food grains is crucial for ensuring food security. However, WTO considers this as trade-distorting subsidies.
  • FRP on sugarcane has exceeded the product specific subsidy limit under AoA.
  • Export subsidies on sugar in violation of AoA.
  • Fisheries Subsidies may contribute to overfishing of marine resources.
  • India’s failure in fulfilling its obligation in notifying its domestic support for sugarcane.


Presently, some of these issues have been resolved through the temporary “Peace clause”. India has argued that subsidies are necessary to ensure food security. Hence, India must engage in meaningful negotiations to arrive at permanent solution to the issue.

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