<blockquote>
<p>I don't understand how is this even a reform, because as per this answer and the Wikipedia page for agricultural subsidies, developed countries are surely spending much more than India on per capita basis and China and US must be spending much more in absolute numbers.</p>
</blockquote>
<p>Just because developed countries have some policies that does not mean they are good policies. USA or EU, while overall relatively (to developing countries) well governed, still have some very inefficient and outdated economic policies on their books and these agricultural subsidies are prime example of that. In fact, these agricultural subsidies are literally textbook examples of bad economic policies (e.g. see Krugman et al International Economics Theory and Policy pp 204).</p>
<p>For example, <a href="http://file:///E:/Downloads/Of_the_benefits_to_the_EU_of_removing_the_Common_A.pdf" rel="nofollow noreferrer">Boulanger &amp; Jomini (2010)</a> estimate that just in the EU Common Agricultural Policy (CAP), which is the European system of agricultural subsidies and quotas,  was resulting in economic <strong>loss</strong> of around 38 billion euros just in the year 2007 alone, while only bringing about 16.5 billion euros of additional benefit. That is on net CAP costed EU  in excess of 20 billion euros <em>per year</em>. That is a warning sign, not an example for others to follow.</p>
<blockquote>
<p>What was the benefit of subsidy reduction back then?</p>
</blockquote>
<p>Generally speaking farming subsidies are textbook examples of bad economic policies that generally result in greater costs than benefits (again see for example Krugman et al cited above) as they misallocate society's resources.</p>
<p>Unfortunately, there seems to be no research which estimated the net negative effect of Indian subsidies in the early 90s, so its difficult to put an concrete number on the damage they did to India's economy as was possible for EU's CAP. However, according to research on Indian subsidies in the 90s by Gulati &amp; Sharma (1995), these subsidies had negative effect. As authors state:</p>
<blockquote>
<p>Our
assessment of the current situation leads us
to conclude that [India's agricultural] input subsidies are cutting
into the resources which could have been
invested in generating new productive
potentials. This is because in a country like
India where resources are limited, the
achievement of any particular objective
usually comes at the expense of other
competing objective.</p>
</blockquote>
<p>Consequently, reduction in the subsidies would have a positive effect, of preventing misallocation of scarce resources India's economy could use better in other sectors.</p>

CC BY-SA 4.0
2021-10-08T19:32:24.397Z
2021-10-08T21:24:22.887Z
2021-10-08T21:24:22.887Z
1muflon1
<p>In the book <a href="https://www.amazon.in/Half-Lion-Narasimha-Transformed-India/dp/0670088226" rel="nofollow noreferrer">Half - Lion: How P.V Narasimha Rao Transformed India</a>, the author mentions that one of the contentious reforms for 1992 were agricultural subsidy reforms. I don't understand how is this even a reform, because as per <a href="https://economics.stackexchange.com/questions/26797/why-does-china-spend-so-much-on-agricultural-farming-subsidies">this answer</a> and the Wikipedia page for agricultural subsidies, developed countries are surely spending much more than India on per capita basis and China and US must be spending much more in absolute numbers. I think the trend would have been same in 1990s. What was the benefit of subsidy reduction back then? Was it because of no WTO, India was free to insulate market from cheap subsidized imports by putting tariffs and quotas and thus it was pure move to cut wasteful expenditure?</p>
<p>Any data from that period would be very helpful</p>

<taxation><government-spending><agriculture><subsidies><wto>
Why agricultural subsidies were targeted in 1991 Indian Economic Liberalization
Kutsit
# Why agricultural subsidies were targeted in 1991 Indian Economic Liberalization

(Asked by: username_0 on 2021-10-08)

In the book [Half - Lion: How P.V Narasimha Rao Transformed India](https://www.amazon.in/Half-Lion-Narasimha-Transformed-India/dp/0670088226), the author mentions that one of the contentious reforms for 1992 were agricultural subsidy reforms. I don't understand how is this even a reform, because as per [this answer](https://economics.stackexchange.com/questions/26797/why-does-china-spend-so-much-on-agricultural-farming-subsidies) and the Wikipedia page for agricultural subsidies, developed countries are surely spending much more than India on per capita basis and China and US must be spending much more in absolute numbers. I think the trend would have been same in 1990s. What was the benefit of subsidy reduction back then? Was it because of no WTO, India was free to insulate market from cheap subsidized imports by putting tariffs and quotas and thus it was pure move to cut wasteful expenditure?

Any data from that period would be very helpful

**Tags:** taxation, government-spending, agriculture, subsidies, wto

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## 1 answers

### Answer by username_1 on 2021-10-08. Score: 2 | Accepted answer

> I don't understand how is this even a reform, because as per this answer and the Wikipedia page for agricultural subsidies, developed countries are surely spending much more than India on per capita basis and China and US must be spending much more in absolute numbers.

Just because developed countries have some policies that does not mean they are good policies. USA or EU, while overall relatively (to developing countries) well governed, still have some very inefficient and outdated economic policies on their books and these agricultural subsidies are prime example of that. In fact, these agricultural subsidies are literally textbook examples of bad economic policies (e.g. see Krugman et al International Economics Theory and Policy pp 204).

For example, [Boulanger & Jomini (2010)](http://file:///E:/Downloads/Of_the_benefits_to_the_EU_of_removing_the_Common_A.pdf) estimate that just in the EU Common Agricultural Policy (CAP), which is the European system of agricultural subsidies and quotas, was resulting in economic **loss** of around 38 billion euros just in the year 2007 alone, while only bringing about 16.5 billion euros of additional benefit. That is on net CAP costed EU in excess of 20 billion euros *per year*. That is a warning sign, not an example for others to follow.

> What was the benefit of subsidy reduction back then?

Generally speaking farming subsidies are textbook examples of bad economic policies that generally result in greater costs than benefits (again see for example Krugman et al cited above) as they misallocate society's resources.

Unfortunately, there seems to be no research which estimated the net negative effect of Indian subsidies in the early 90s, so its difficult to put an concrete number on the damage they did to India's economy as was possible for EU's CAP. However, according to research on Indian subsidies in the 90s by Gulati & Sharma (1995), these subsidies had negative effect. As authors state:

> Our
> assessment of the current situation leads us
> to conclude that [India's agricultural] input subsidies are cutting
> into the resources which could have been
> invested in generating new productive
> potentials. This is because in a country like
> India where resources are limited, the
> achievement of any particular objective
> usually comes at the expense of other
> competing objective.

Consequently, reduction in the subsidies would have a positive effect, of preventing misallocation of scarce resources India's economy could use better in other sectors.


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