Farm Subsidies, Credit, Insurance and Income Support

Types of farm subsidies

Direct subsidies: cash paid to farmers, such as PM-KISAN and state income support.

Indirect subsidies: inputs provided below cost:

• fertiliser (the largest);
• power (state discoms supply free or cheap electricity for farm pumps);
• irrigation water (canal water charges are far below cost);
• credit (interest subvention);
• seeds, machinery and crop insurance premiums.

Price support: MSP procurement and the costs of food stocks.

The economic debate:

• Input subsidies distort input use (excess urea, groundwater depletion) and benefit larger farmers who use more inputs.
• Direct income transfers are less distorting, WTO-compliant (green box), and progressive if well targeted.

Most economists recommend gradually moving from input subsidies to direct transfers.

Income support

PM-KISAN (February 2019):

• ₹6,000 a year in three instalments of ₹2,000, paid by DBT to all landholding farmer families;
• exclusions: income taxpayers, institutional landholders, professionals and others;
• beneficiaries: about 9–10 crore families in recent instalments; the 20th instalment was paid in August 2025;
• issues: it excludes tenants and landless labourers, depends on land records, and some ineligible beneficiaries had to refund money.

State schemes:

• Telangana's Rythu Bandhu (2018), a per-acre investment support, later renamed Rythu Bharosa;
• Odisha's KALIA (2018), which includes landless households and sharecroppers;
• West Bengal's Krishak Bandhu.

Pensions: PM Kisan Maandhan Yojana (2019), a contributory pension of ₹3,000 a month after age 60 for small and marginal farmers.

Agricultural credit

The agricultural credit flow target was ₹27.5 lakh crore for 2024–25, met mostly by commercial banks. The PSL sub-target for agriculture is 18% of adjusted net bank credit, with 10% for small and marginal farmers.

Kisan Credit Card (KCC, 1998):

• introduced on the R.V. Gupta Committee recommendation, implemented by NABARD;
• a revolving credit limit for crop production and allied needs;
• extended to animal husbandry and fisheries in 2018–19;
• about 7.5 crore operative KCC accounts;
• under the Modified Interest Subvention Scheme, short-term crop loans up to ₹3 lakh carry 7% interest, with an extra 3% prompt repayment incentive, giving an effective rate of 4%;
• the 2025–26 Budget raised the subvention limit to ₹5 lakh.

Collateral-free limit: loans up to ₹2 lakh (raised from ₹1.6 lakh in January 2025).

Institutions:

• NABARD (1982), the apex development bank for agriculture and rural areas, set up on the B. Sivaraman Committee recommendation. It refinances banks and manages the Rural Infrastructure Development Fund (RIDF);
• cooperative banks and PACS;
• RRBs;
• commercial banks;
• microfinance.

Problems:

• informal debt persists: the NSS 77th round (2019) found that about half of agricultural households were indebted, many to moneylenders;
• tenants cannot get institutional credit;
• regional skew: the South gets more credit than the East and North-East;
• misuse of cheap crop loans for non-farm purposes.

Farm loan waivers:

• the Centre's 2008 waiver (Agricultural Debt Waiver and Debt Relief Scheme, about ₹52,000 crore);
• state waivers since 2014 (UP, Maharashtra, Punjab, Karnataka, Telangana and others).

Critics (RBI, economists): waivers damage credit culture, burden state finances and help only farmers with institutional loans. Supporters: they provide relief in distress.

Crop insurance

Pradhan Mantri Fasal Bima Yojana (PMFBY, kharif 2016):

• replaced NAIS and MNAIS;
• farmer premium: 2% for kharif, 1.5% for rabi food and oilseed crops, and 5% for commercial and horticultural crops; the rest is shared by the Centre and states (50:50, or 90:10 in the North-East and Himalayan states);
• covers pre-sowing to post-harvest risks, including localised calamities such as hailstorms and post-harvest losses;
• voluntary for all farmers since 2020; earlier it was mandatory for loanee farmers.

Technology: the YES-TECH system (remote sensing yield estimation, 2023), WINDS (weather data), and CROPIC (crop photos).

Issues:

• delayed claim settlement;
• disputes between states and insurers;
• states exiting: Bihar, Gujarat, West Bengal, Andhra Pradesh, Telangana and Jharkhand left at various times, citing cost. Some later rejoined; check the current list;
• insurer profits in good years;
• low awareness among tenants.

Restructured Weather Based Crop Insurance Scheme (RWBCIS): a parametric scheme paying out on weather triggers.

Livestock insurance comes under the National Livestock Mission.

Analysis: towards a better support system

The farm income problem: the Situation Assessment Survey 2019 found that the average monthly income of an agricultural household was about ₹10,218. Crop cultivation contributed only about 37%; wages and livestock made up the rest. The goal of Doubling Farmers' Income by 2022 (announced in 2016, Ashok Dalwai Committee) was not met in real terms.

Reforms suggested:

• shift from input subsidies to per-hectare or per-farmer income support with fertiliser and power subsidy savings;
• extend support to tenants through tenancy records;
• improve insurance design and speed of claims;
• invest in public goods (research, irrigation, markets), which give higher returns than subsidies (IFPRI studies);
• diversify income sources: livestock, fisheries and rural non-farm jobs.

Common prelims traps

• PM-KISAN excludes landless and tenant farmers; KALIA includes them.
• KCC interest is effectively 4% with prompt repayment.
• PMFBY became voluntary for loanee farmers in 2020.
• NABARD was set up in 1982 on the Sivaraman Committee recommendation.

Practice: Mains question

*"Direct income support is a better instrument than input subsidies for supporting Indian farmers." Critically examine. (250 words)*

Agricultural distress: understanding farmer suicides

Data: the NCRB reported over 10,000 suicides among farmers and agricultural labourers each year in recent years. Maharashtra, Karnataka and Andhra Pradesh account for a large share.

Causes:

• crop failure, from drought and pests;
• indebtedness, especially to moneylenders;
• price crashes;
• small holdings;
• high cultivation costs in cash crops such as cotton;
• lack of social support.

Responses:

• prompt insurance settlements;
• restructuring of debts;
• mental health support;
• diversification;
• states' relief packages for suicide-affected families.

Allied sector support

Credit: KCC cover for animal husbandry and fisheries since 2018–19, plus dedicated funds:

• the Animal Husbandry Infrastructure Development Fund (AHIDF, 2020);
• the Fisheries and Aquaculture Infrastructure Development Fund (FIDF, 2018).

Why it matters: allied sectors provide more regular income than crops. They are increasingly the focus of income support policy.

Quick self-test

1. *Why are input subsidies regressive?* Larger farmers use more inputs and so capture more of the subsidy.
2. *What is a parametric insurance product?* One that pays out automatically when a measured trigger (rainfall, temperature) is crossed.
3. *Why do loan waivers often miss the poorest farmers?* They borrow from informal sources, which waivers do not cover.
4. *What does KCC cover?* Crop production, post-harvest needs, household consumption and, since 2018–19, animal husbandry and fisheries.

Interest subvention and the cost to the exchequer

The Modified Interest Subvention Scheme costs the Centre about ₹15,000–22,000 crore a year. Critics argue that cheap crop credit is diverted to non-farm uses, and that the money would be better spent on long-term investment credit, such as irrigation and storage. The share of term loans in agricultural credit has fallen, which suggests under-investment in farm assets.

Key terms

• Interest subvention: the government pays part of the interest so that farmers pay a lower rate.
• Loanee farmer: a farmer with an institutional crop loan.
• Debt trap: borrowing to repay existing loans.
• DBT: direct benefit transfer of subsidies or income support into bank accounts.