NEW DELHI: Massive subsidies for paddy (rice) growers, particularly in water-scarce regions like Punjab and Haryana, have made paddy the most profitable crop in the country. This is largely due to state-guaranteed purchases and the extensive financial support provided, according to a new study. Consequently, farmers are reluctant to shift to other crops such as pulses, which are in scarce supply.
India relies heavily on costly imports to meet its local demand for pulses and oilseeds, spending $3.75 billion on pulses and $14.8 billion on edible oils in the 2023-24 fiscal year, official data shows. Despite the Union government prioritizing self-sufficiency in pulses by 2027, the study by the Indian Council for Research on International Economic Relations highlights the difficulty in shifting farmers away from paddy due to the heavy skew of agricultural subsidies towards rice.
In 2023-24, the combined subsidies for paddy from the Centre and Punjab’s state government for power, seeds, fertilizer, and irrigation amounted to a staggering Rs 38,973 per hectare, the highest for any crop. Moreover, in 2021-22, paddy cultivators in Punjab and Haryana used more fertilizers than for any other crop, indicating that a significant portion of the fertilizer subsidy is funneled into paddy cultivation.
The study does not recommend eliminating rice subsidies but suggests offering upfront incentives of Rs 30,000-40,000 per hectare for non-paddy farmers by repurposing power and fertilizer subsidies to alternate kharif or summer crops.
India, a major rice exporter, accounted for over 40% of global shipments in 2021-22, exporting nearly 22 million tonnes of rice, about one-sixth of its total output. However, in August 2023, the country banned rice exports to control rising cereal inflation.
Farmers prefer paddy partly due to a guaranteed minimum support price (MSP), which ensures a higher income compared to other crops. The government buys paddy and wheat at MSP rates, providing a safety net absent for other crops, which are left vulnerable to market fluctuations, the study, led by economist Ashok Gulati, notes.
The authors calculated that after deducting the cost of cultivation per hectare (using a cost measure known as A2, which includes all out-of-pocket expenses and family labor) from the gross value of output per hectare, paddy offers greater financial returns. In 2021-22, the profit margin for paddy significantly exceeded that of other summer crops, with differences ranging from Rs 66,663 per hectare for maize and Rs 11,462 for moong (green gram) in Punjab to Rs 68,849 per hectare for bajra (pearl millet) and Rs 36,295 for cotton in Haryana.
The study concludes that the skewed subsidy towards paddy contributes to approximately one-third of its profitability, making it economically challenging for farmers to justify planting more environmentally sustainable crops.