Are input subsidies for fertiliser, power, and water a safety net or a trap?

Input subsidies for fertilisers, electricity, and irrigation were introduced with the noble intention of protecting farmers from volatile costs and supporting agricultural productivity. Seven decades later, India spends over INR 4 lakh crore annually on these subsidies, yet productivity has plateaued, environmental damage mounts, and farmers remain dependent. Subsidies have become both a safety net and a trap, offering short-term relief while creating long-term fragility.

Subsidies lower visible costs but produce distortions that ultimately harm the farmers they were designed to protect. Urea is subsidised far more heavily than phosphorus or potassium, encouraging nitrogen overuse while neglecting balanced nutrition. Free power causes tube wells to run for hours longer than needed, and flood irrigation becomes the default over drip or sprinkler systems. In Punjab, Haryana, Gujarat, and parts of Maharashtra, groundwater extraction now exceeds recharge, with the Central Groundwater Board classifying over 35% of assessment blocks as over-exploited. Farmers grow water-intensive paddy in water-scarce regions not because it makes agronomic sense, but because assured procurement and free power make it financially rational. Far from building resilience, these distortions lock farmers into resource-depleting practices that erode the very foundations of agricultural viability.

The fiscal burden of subsidies crowds out the investments that could make Indian agriculture genuinely productive. Every rupee spent on subsidies is a rupee not spent on agricultural research, rural roads, market infrastructure, or extension services. State electricity distribution companies, strained by subsidy burdens, are technically bankrupt and unable to maintain a reliable supply. The subsidy system thus perpetuates the fragility it claims to address, starving the sector of the structural support it needs.

Direct benefit transfers offer a more sustainable path than either the status quo or abrupt abolition. Sudden removal of subsidies would be devastating in the short term, leaving vulnerable farmers exposed without a transition mechanism. Shifting instead to direct cash transfers would preserve support while restoring price signals, giving farmers the flexibility to make decisions based on actual cost and need. Targeting support at incomes rather than inputs is the reform that could finally break the cycle of dependency.