In 2023. farmers experienced the highest level of implicit taxation globally, amounting to $120 billion. This was revealed in the latest OECD assessment of agricultural policies. The Government of India’s export restrictions on key commodities were aimed at controlling food prices for consumers. However, these measures adversely affected farmers’ incomes.
Overview of Implicit Taxation
Implicit taxation occurs when government policies lower the prices received by producers. In India, this has been primarily due to export bans and duties. The aim is to keep food affordable for consumers. However, the downside is that farmers earn less than they would in a free market.
Impact of Government Policies
In 2023, the Government of India imposed various export restrictions on rice, sugar, and onions. These policies were intended to prevent domestic price hikes. While consumers benefited, farmers faced reduced receipts. This led to a negative market price support (MPS) for farmers, indicating that the government’s support was insufficient to counteract the price-depressing effects of these policies.
Financial Implications for Farmers
The OECD report brought into light that between 2021 and 2023, the negative MPS constituted 26.1 per cent of gross farm receipts. This means farmers received lower income than expected. Although there was a positive support of $10 billion through minimum support prices and subsidies, it was not enough to offset the negative impacts.
Comparison with Other Countries
India’s situation is stark compared to other nations. The country accounted for 62.5 per cent of all global implicit taxation on farmers in 2023. Following India were Vietnam and Argentina, but their levels of negative support were considerably lower. This marks the unique challenges faced by Indian farmers within the global agricultural landscape.
Long-term Trends in Agricultural Support
The report indicates a worrying trend. India’s share of implicit taxation has increased over the years. In 2000-02, it constituted 61 per cent of negative support. By 2021-23, this figure had risen to 75 per cent. This suggests a growing burden on farmers, which could have long-term implications for agricultural sustainability and food security in India.
Questions for UPSC:
- Critically analyse the implications of implicit taxation on agricultural productivity in India.
- What are the various factors contributing to negative market price support in India? Explain.
- What is the role of government policies in shaping farmers’ incomes? Discuss with suitable examples.
- Comment on the global context of agricultural support systems and their impact on developing countries like India.
