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Subject: SubsidiesXAgriculture

  • Madhya Pradesh farmers march to Bhopal demanding 100% moong procurement at MSP

    Why in News?

    Around 2,000 Madhya Pradesh farmers under the Samyukt Kisan Morcha marched to Bhopal demanding 100% moong procurement at Minimum Support Price (MSP), against the current 25% cap under the central Price Support Scheme, along with fixes to fertiliser distribution.

    Key Highlights

    1. Scale: Around 2,000 farmers marched to Bhopal.
    2. Organiser: March organised under the Samyukt Kisan Morcha banner.
    3. Demand: 100% moong procurement at MSP, against the current 25% cap.
    4. Scheme cited: Current cap operates under the central Price Support Scheme.
    5. Additional demand: Fixes to fertiliser distribution.

    What is the Price Support Scheme (PSS)?

    1. A component of the PM-AASHA (Pradhan Mantri Annadata Aay Sanrakshan Abhiyan).
    2. Implemented by the Department of Agriculture & Farmers Welfare.
    3. Provides physical procurement of notified pulses, oilseeds and copra at the Minimum Support Price (MSP) when market prices fall below MSP.
    4. Procurement is undertaken by Central Nodal Agencies in coordination with State governments.

    What is Minimum Support Price (MSP)?

    1. MSP is the minimum price at which the government purchases crops from farmers to protect them from sharp price declines.
    2. Recommended by the Commission for Agricultural Costs and Prices (CACP) and announced by the Central Government.
    3. MSP is currently announced for 23 crops.

    “[2018, GS3, 10 marks] What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low-income trap?”

    [2020] Consider the following statements:

    1.In the case of all cereals, pulses and oil-seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.
    2.In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.

    Which of the statements given above is/are correct?
    a) 1 only
    b) 2 only
    c) Both 1 and 2
    d) Neither 1 nor 2

  • Cabinet’s National Investment Policy for Urea (NIPU) 2026

    Why in the News?

    The Union Cabinet has approved the National Investment Policy for Urea (NIPU) 2026, restructuring the return framework for urea manufacturers to attract fresh investment in domestic capacity. This comes against an annual urea subsidy bill of Rs 1,42,175.74 crore for 2025-26.

      What are the Pillars of the National Investment Policy for Urea (NIPU) 2026?

      1. Aim: The policy aims to encourage the establishment of new gas-based urea manufacturing plants across the country to reduce dependence on imports and bridge the gap between domestic production and demand.
      2. The National Investment Policy for Urea-2026 (NIPU-2026) rests on three core pillars: cost separation, assured returns, and foreign exchange risk mitigation.
      3. Return band: The policy sets a Return on Equity (ROE) band of 12 to 16 percent for new urea manufacturing investment.
      4. Cost restructuring: It restructures how production costs are calculated and reimbursed to manufacturers.
      5. Subsidy delivery: Distribution continues through Direct Benefit Transfer (DBT), credited after retailers confirm sale to farmers.
      6. Self-reliance objective: The stated goal is to reduce India’s dependence on imported urea by making domestic capacity commercially viable.

      Why does urea self-reliance remain unresolved despite this policy?

      1. Subsidy scale: The current annual subsidy bill of Rs 1,42,175.74 crore reflects the price gap between controlled retail urea prices and actual production cost.
      2. Investment history: Previous urea policy revisions have not sufficiently attracted new private investment in domestic plants.
      3. Import dependence: India continues to import a share of its urea requirement despite decades of subsidy support to domestic units.
      4. Farmer price link: Retail urea prices remain fixed for farmers regardless of the ROE band offered to manufacturers.

      Conclusion

      The National Investment Policy for Urea 2026 targets manufacturer incentives rather than farm gate prices, betting that better returns on investment will draw the domestic capacity that decades of subsidy alone did not. Whether the 12 to 16 percent ROE band is sufficient to shift investment decisions remains to be tested against actual capacity additions.

      Value Addition:

      Urea Subsidy Scheme:

      Urea fertiliser subsidy in India is a central government scheme where the state fixes a low Maximum Retail Price (MRP) of ₹242 per 45-kg bag for farmers, while the government pays the remaining high production or import cost directly to manufacturers.

      Scheme Mechanics

      1. Fixed MRP: Farmers pay a low, controlled price of ₹242 per 45-kg bag (excluding taxes and neem-coating charges).
      2. Government Payout: The center pays the difference between the actual high cost of making or importing urea and the low selling price directly to the factory owners.
      3. Control: The Ministry of Chemicals and Fertilizers manages the policy and distribution across the country.

      PYQ Relevance

      [UPSC 2023] 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.

      Linkage: The PYQ examines India’s fertiliser subsidy regime and related WTO concerns. NIPU 2026 reforms urea subsidies to boost domestic production while retaining farmer subsidies, linking directly to agricultural subsidy debates.

      1. What are the different types of agriculture subsidies given to farmers at the national and at state levels? Critically analyse the agricultural subsidy regime with reference to the distortions created by it.

      2. In what way could replacement of price subsidy with direct benefit Transfer (DBT) change the scenario of subsidies in India? Discuss.

      3. How do subsidies affect the cropping pattern, crop diversity and economy of farmers? What is the significance of crop insurance, minimum support price and food processing for small and marginal farmers?

      4. What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low-income trap?

        MSP is the government-declared assured floor price at which the government procures specific agricultural crops from farmers, through agencies like FCI, NAFED and state procurement bodies.

        Announced before the sowing season based on recommendations of the Commission for Agricultural Costs and Prices (CACP)

        Intended to cover the cost of production + reasonable margin (50% over A2+FL cost)

        Notified for 23 crops (22 mandated crops andFRP for sugarcane)

        Role of MSP in rescuing farmers from the Low-Income Trap

        Predictability – Assured pricing helps farmers plan crop investments, buy better inputs and adopt new technologies.

        Crop diversification through higher MSPs for nutri-cereals and oilseeds. Eg- higher MSP hikes for millets in recent years

        Improved creditworthiness of farmers due to MSP-backed income – Reduce dependence on moneylenders.

        Enhances Food Security through the Public Distribution System (PDS)

        Strengthens Rural Economy – higher rural demandmultiplier effect on rural economy

        Benchmark for private buyers: If traders offer prices below MSP, farmers can opt to sell to government agencies instead.

        Limitations of MSP

        Effective mainly for wheat and rice in states like Punjab, Haryana, MP, UP

        MSP growth has not kept pace with rising production costs. (CRISIL Report)

        Limited Reach – only 6% farmers benefitted (Shanta Kumar committee)

        94% of the total agri and allied sector output is outside MSP support.

        Limited storage capacity has resulted in huge piling of stocks in FCI warehouses.

        Way Forward

        Shift towards Regenerative Agriculture Incentives – Eg- DBT for farmers adopting soil-friendly inputs, micro-irrigation, and low-carbon practices

        Price Deficiency Payment (MP’s Bhavantar Bhugtan Yojana)

        MSP 2.0 based on 3 D’s – Decentralisation, Diversification and Digital Procurement.

        MSP can act as a meaningful income stabiliser only when it is complemented by efficient procurement, strong market linkages, and inclusive access

      5. 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.

        The total government subsidy for food and fertilizers for the fiscal year 2025-26 is budgeted at It constitutes around 2% of India’s GDP and 21% of farmer’s income.

        Direct subsidies –

        These involve direct budgetary support or cash transfers to farmers and agricultural institutions.

        Income support schemes –

        PM-KISAN

        Raythu bandhu Scheme of Telangana

        MSP For 23 crops to ensure Income Security

        Interest subvention through Kisan Credit Cards – KCC)

        Crop insurance premium subsidy under PMFBY (Pradhan Mantri Fasal Bima Yojana)

        Indirect subsidies to the farm sector

        These reduce production costs or guarantee revenue without direct cash payment:

        Fertiliser subsidy – Subsidised urea, DAP and other fertilisers under the Nutrient Based Subsidy

        Subsidy on agricultural infrastructure

        PM-KUSUM – Subsidy for Solar Pumps

        PMFBY – Subsidy for Micro Irrigation

        Agriculture Infrastructure Fund (AIF) – Credit-linked subsidy for cold storage

        Gramin Bhandaran Yojana – Support for rural godowns and storage

        Power & irrigation subsidy

        Free or highly subsidised electricity for irrigation pumps

        Subsidised canal and micro-irrigation schemes (Eg- PMKSY)

        Seed and mechanisation subsidy – Eg- Sub Mission on Agriculture Mechanisation

        Research & Extension services – Funding to ICAR, Krishi Vigyan Kendras (KVKs)

        Issues raised by WTO regarding India’s agricultural subsidies

        Subsidy Classification by WTO

        Green Box – Allowed (non-trade distorting). Eg- extension, infrastructure

        Blue Box – Production-limiting subsidies

        Amber Box – Trade-distorting subsidies. (10% of output) Eg- MSP, input subsidies

        Trade-distorting support – MSP, fertiliser, power & irrigation subsidies classified as Amber Box. May exceed 10% de-minimis limit for developing countries

        WTO decision (Nairobi, 2015) prohibits export subsidies. India’s sugar export incentives were challenged & ruled WTO-inconsistent

        Transparency issues – Allegations of under-reporting or delayed reporting of subsidies

        Environmental concerns – overuse of fertilisers and groundwater, causing Soil degradation, Groundwater depletion and Ecological stress

        The sustainable path for ensuring farmer welfare remains protected includes gradual shift towards Green-Box-compliant support such as direct income transfers, infrastructure creation, R&D, crop insurance and climate-resilient agriculture.

      6. Consider the following statements

        Consider the following statements :
        1. The Commission for Agricultural Costs and Prices recommends the Minimum Support Prices for 32 crops.
        2. The Union Ministry of Consumer Affairs, Food and Public Distribution has launched the National Food Security Mission.
        Which of the statements given above is/are correct ?

      7. Consider the following statements

        Consider the following statements:
        1. The Union Government fixes the Statutory Minimum Price of sugarcane for each sugar season
        2. Sugar and sugarcane are essential commodities under the Essential Commodities Act
        Which of the statements given above is/are correct?

      8. Consider the following

        Consider the following:

        1. Areca nut
        2. Barley
        3. Coffee
        4. Finger millet
        5. Groundnut
        6. Sesamum
        7. Turmeric

        The Cabinet Committee on Economic Affair, has announced the Minimum Support Prick for which of the above?