Agricultural subsidies in India and the US

The international trade includes a set of actions aiming to exchange goods and services between countries across borders. It allows companies to compete in the international market to employ competitive advantage for the products and services. The international trade allows companies to expand their market share (Bernard, Grazzi & Tomasi, 2015). This report includes the subsidies provided in the agriculture sector, car industry and solar energy industry. The agriculture subsidy and car industry subsidy of India and U.S are explained in detail. The agricultural subsidies are provided to the farmers to enhance agricultural productivity. The car industry subsidies promote car manufacturers and customers to use resources available in the country. These subsidies provide benefits to the manufacturers and focus on increasing production. These provide assistance in the form of cash or tax reduction. It considers the interest of the public and promotes economic policy. It also promotes industries by providing financial assistance. The government strives to implement policies and encourage production and consumption in the industries.  The report further includes the positive aspects and the negative aspects of the subsidies.

The agricultural subsidy is a government subsidy which is paid to the agricultural businesses, organizations, and farms. The subsidies are basically the financial assistance offered by the government to the farmers by government-sponsored price support programs. These subsidies are having aim at providing benefits to farmers by stabilizing food prices, ensuring abundant food production and guaranteeing a basic income to farmers. The agriculture subsidies are given in various forms.

Input subsidies

The subsidies granted through the distribution of inputs at prices less than the regular market price. There are several subsidies which are categorized under this category:

• Fertilizer subsidy: It includes cheap chemical or non- chemical fertilizers among the farmers. It is the difference between the price paid to a fertilizer manufacturer and the price received from the farmers. The fertilizer subsidy ensures low-priced input to the farmers, stability in the price of the fertilizers and accessibility of fertilizers to the farmers. It also provides reasonable returns to the manufacturers (Dupas, 2014).
• Irrigation subsidy: This subsidy is provided to the Indian farmers on the account of offering proper irrigation facilities. It is the difference between operating and maintenance cost of irrigation infrastructure and the charges are recovered from the farmers. It works through various public facilities such as canals and dams which are constructed by the government. The farmers are charged low prices or no prices at all for using these facilities.
• Power subsidy: The government charges low rates from the farmers for the electricity supplied to them. The power is basically used by the farmers for the irrigation purpose. It is the difference between the cost of producing and distributing electricity to the farmers and the price received from them (Bronzini & Piselli, 2016). There are state electric boards in India which either generate power or purchase from other producers. The farmers are encouraged to invest in pump-sets and bore-wells through this subsidy.
• Seed subsidy: The high yielding seeds are provided to the farmers at low prices. The research and development are made on producing such seeds by the government. The expenditure made on producing productive seeds is granted by the government to the farmers.
• Credit subsidy: The availability of credits is such a critical problem for the farmers. The credit subsidy is the difference between the interest charged and the actual cost of providing credit (Chen, Wen, Wang & Nie, 2017). The farmers do not have enough collateral needed for the loans. They are not in such a situation that they can approach the credit market. The government provides loans at low rates to the farmers in the rural areas. The collateral requirements are also kept less for the farmers.

Price subsidy

The farmers bear loss due to the low market prices instead of making profits. The price subsidy is the difference between the prices at which Food Corporation procures grains from the framers and the price at which grains are sold to the traders (Bruckner, 2016). The government purchases crops from the farmers at a price higher than the market price. This price is known as the procurement price.

Infrastructural subsidy: The efforts made by the private sector are not enough to enhance agricultural production in India. The facilities such as good roads, power, market information, transportation and the storage facilities are provided by the government so that such facilities can be availed by the poor farmers (Edmond, Midrigan & Xu, 2015).

Car industry subsidies in India and the US

Export subsidies: The subsidies which are provided by the government to encourage exports are termed as export subsidies. The export subsidies are provided by the government to the farmers who export agricultural products in the foreign market. The farmers earn money for themselves and contribute in the foreign exchange to the country (Burstein & Vogel, 2017). The agricultural exports are encouraged which benefits to the domestic economy.

The U.S government makes a huge investment in the subsidies for the farm businesses.

Insurance

The largest subsidy provided by the U.S government is crop insurance. The insurance is available for more than 100 crops out of them, corn, soybeans, cotton are the main. Almost 80% of the policies protect against the shortfalls whereas 20% protects against yield shortfalls. The U.S government pays average it’s 62% of premiums on the subsidies.

Agriculture risk coverage

 This subsidy is provided to the farmers when their revenue per acre falls below a benchmark level. It should be noticed that lower the prices and revenues, larger the subsidies are. This program covers more than 20 crops (Dür, Baccini & Elsig, 2014).

Price loss coverage

This subsidy is paid to the farmers on the basis of the national average price of crops compared to the crop price set by the government. If there is a fall in the national crop price than the large pay-out is made to the farmers. This subsidy covers more than 20 crops. The farmers can either cover under the agriculture risk or price loss.

Conservation programs

The U.S government runs various conservation programs to improve lands which are used for the production purpose like conservation stewardship program (Geels & Penna, 2015). There are also programs which pay farmers to take land out of production such as conservation reserve program.

Marketing loans

It is a price guarantee program. The loan is made available to the farmers during the harvest time so that they can store their crops to sell at higher prices later on. It boosts the income of farmers.

Disaster Aid

The government has established a disaster aid program for the farmers from wheat growers to orchard operators. The amount is distributed more for the adverse events in this program (Hennig & Breustedt, 2018).

Marketing and export promotion

The government spends $1.2 billion on the farm and food promotional activities per year whereas the foreign agricultural services spend almost $300 million on the marketing activities.  

Comparison of agricultural and car industry subsidies

The government employs scientists and experts from various departments to support the agricultural industry. The government spends $3 billion on the research for the food and agriculture every year. This subsidy also supports farmers by providing statistical data and the data related to the economy (Hud & Hussinger, 2015).

The car industry subsidies in India

Tax deduction

The tax deduction is given to the automobile manufacturers in India under the Income Tax Act. The grants are provided to the national laboratories and the universities to conduct R&D programs approved by the authority (Helveston, et. al. 2015).

State incentives

India offers additional incentives for the industrial projects. The incentives are provided related to rebate in land costs, tariff incentives, concession on the interest on loans and reduction in stamp duty (Jones & Kierzkowski, 2018). Some states in the country are committed to providing land at concessional rates accompanied by 24 hours uninterrupted power supply.

Financial assistance

The financial assistance of 50% for fixed capital is provided for the investments in buildings and infrastructure. The automobile industries are also provided 100% electricity duty exemption for the next 10 years from the starting date of production.

Export incentives

The automobile manufacturers are provided the benefit of 2% on the export of vehicles under the merchandise export incentive scheme. There are 20 tariffs which are considered sensitive items and are maintained in the negative list of the trade agreements (Kirwan & Roberts, 2016).

GST

The Indian government has implemented GST, provides subsidies and charges lower excise duties for the electric and hybrid vehicles. A lower rate of interest is charged on the auto loans from the customers of rural areas. The government has also cut down the excise duties on the commercial and passenger vehicles.

Hybrid electric vehicles

The national government and the local authority provide financial assistance to the plug-in electric vehicles. It includes exemptions from the taxes and provides tax credits. These incentives depend on the size of the battery and the range of the electric vehicle.

Tax credits

The federal and the state government offer financial incentives comprising tax credits. Such credits are also provided for lowering upfront costs of electric vehicles. The size of the tax credits depends on the size of vehicle (Kirwan, 2017).

Research and development

The U.S is providing subsidies for the innovations. The research and development initiatives are transforming the car industry to respond better to the opportunities. The government has made an investment of $105 billion on research and development.

Positive and negative aspects of subsidies

Open investment policy

The U.S has exported 2 million on the new light vehicles, medium and heavy trucks over 200 markets worldwide. The open investment policy of U.S attracts a large base of consumers and highly skilled workforce.

Profitability tax solutions

As the economy is developed the demand for the automobile grows on the daily basis. The federal and the state government provide tax planning to the automobile companies and making global effective tax rates (Meng, Shoulin & Jia, 2016). The government also assists capital expenditure planning.

Vehicle scrappage scheme

It is a special consumer subsidy which aims to increase the demand for cars in the country. It enables consumers to scrap vehicles which are more than 10 years older. The consumers can avail discount on the exchange of new vehicles.

The subsidies for the solar energy measure the prices for the consumers below the market price. The subsidies charges reduced costs from the producers and consumers. The solar energy subsidies may be in the form of cash or indirect support mechanism such as trade restrictions, tax exemption and rebates (Allcott, Knittel & Taubinsky,  2015). It also comprises energy conversation subsidies. All the solar energy subsidies depend on the subsidies for the development.

Positive aspects of agricultural subsidies

The agriculture subsidies are designed to increase the income of farmers in the U.S. It is made possible by raising long-term level of prices and by offering direct payment to the farmers. Such subsidies influence costa and supply of commodities such as milk, sugar, cotton, wheat, grains, tobacco, soybeans and more.

Reduce agricultural imports

The need for the food is growing along with the growing population. The countries like India and U.S lack agricultural products and required to import products from other countries. Imported products are usually more expensive than the domestic products. In such a scenario, the agricultural subsidies encourage farmers to produce more in the domestic country which leads to more local products and fewer imports (Ouyang & Lin, 2014). In such a way, reliability can be reduced on the international food sources. Exporting local products can help countries to gain some economic benefit.

Steady income to farmers

The agricultural subsidies provide financial aid to the farmers and help in purchasing equipment and technology required for farming. The subsidies also provide infrastructure facilities for the transport of agricultural produce from the farm to the end users. It is seen that farmers cannot afford to buy farm infrastructure especially the products which need heavy capitalization (Penna & Geels, 2015). The farmers do not get income instantly; they need to wait until the crop rises. In such a scenario, farmers can take help from the governments in the form of subsidies. Such subsidies can also be used to take care of the field.

Conclusion

Manage food supply

The countries which produce agricultural products in plenty do not face a problem in the food supply. The subsidies can be used to make sure that the right amount of crops is produced by the farmers to serve a huge population. The subsidies provide every possible assistance to the farmers to produce a greater harvest. The subsidies make possible to manage resources when there is plenty of agricultural produces (Schaner, 2018).
Risk coverage

The subsidies cover risk coverage for the farmers. If there is a shortage of rainfall, an excess of rainfall, dearth or famine, the government takes up the charge and provides financial assistance to the farmers. They help farmers and help to bear the loss and provide them the opportunity to start again their work. The farmers are provided with good quality and hybrid seeds along with manure and fertilizers (Sahu, 2015).

Good value of scrap items

The subsidies provided to the car industries gives the opportunity to the customers to get exchange their old cars with new cars. The consumers get a good amount of discount while purchasing a new vehicle. These subsidies are limited to the electric vehicles.

Air quality

The subsidies provided by the government to improve the quality of subparts used by the car manufacturers. The subsidies focus on improving air quality so that the pollution can be reduced in the environment. The focus is made on using filters which can reduce the harmful effect on the environment.

Technology

The manufacturers are required to use the green technology under the subsidy provided by the government. It provides direct benefits to the companies such as extra jobs.

Increased production

 The subsidies are provided by the government to the car manufacturing companies to produce the car at minimum costs so that everyone can afford to purchase cars. The good volume of production reduces the cost of the companies. It ultimately leads to increase the profit of the companies and results in increased revenue of the government treasury (Thow, Downs & Jan, 2014). The subsidies also help companies to gain competitive advantage from the international car manufacturers.  The hybrid system is advised to use under subsidies to get better results.

Negative aspects of agricultural subsidies

Need government intervention

The farmers require government intervention as the subsidies directly affect the price and supply of commodities. It is considered that the government never want the price to come naturally through supply and demand. It is because it would make agricultural subsidies senseless. It will be predicted by the market fluctuations.

Lack of product diversity

All types of crops do not fall under the subsidy. The farmers who really need subsidies are seen to grow crops dictated in the program forcefully. It affects both the variety and diversity of the agricultural products in the market. It leads to the failure of the purpose of lowering agricultural imports because the products which are not produced locally have to be sourced from somewhere else (Yarbrough & Yarbrough, 2014).

Damages environment

Some subsidies are harmful to the environment. The agricultural subsidies ignore the traditional method of farming which includes alternating and diversified crops. It is seen that continuous planting of the similar crop for a long time can reduce the productivity of land and leads to soil erosion. The use of certain chemicals can also lead to a disaster of the environment.

Negative aspects of the subsidies for car industries

Reduced incentives

The government subsidies reduce incentives for the car industry to cut costs. The government in India and U.S should stop subsidizing firms unless there is a social benefit to the companies. An automobile company which uses environmentally friendly technology should be given positive externality.

Job losses

The car industry is suffering from the problems like a recession, the credit crisis and oversupply. The large subsidies do not help companies to deal with unemployment. The job losses are avoided in the subsidy (Zuniga?Vicente, Alonso?Borrego, Forcadell & Galán, 2014).

Conclusion 

The subsidies have an important role in the growth of the companies. These are the cash grants or loans which are provided by the government to encourage activities. The subsidies rely on the number of goods and services provided. These are the financial benefit provided to the industries in the form of unfair advantage. The subsidies provided to the agriculture sector in India and U.S resulted in reducing agricultural imports, steady income to the farmers and risk coverage related to crops from rainfall or natural calamity. The subsidies provided in the car industry results in a good value of scrap items, enhanced technology, air quality and increased production. The main negative aspect realized in subsidies is government intervention. But this intervention is sometimes unnecessary but aims to increase the profits of the farmers as well as car manufacturers. The subsidies have more positive influence than negative.

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