Is Input Subsidy Regime in Indian Agriculture Environmentally Sustainable? An Econometric Investigation

Abstract

The empirical economics literature is devoid of a study that addresses the environmental effects of the agricultural subsidy regime. This deficiency has put a challenge before the policymakers and they have pursued agricultural subsidy by taking into account its private cost only, whereas social cost is much higher due to the involvement of environmental dynamics into it. The present article works to fill this void by empirically investigating the linkages between agricultural input subsidies and environmental emissions in India. To investigate the dynamic relationship, an autoregressive and distributed lag model is applied to annual time–series data from 1981 to 2019 because this method is best suited for the nature of the underlying data series. Research outcomes infer that while both fertiliser and irrigation subsidies exert positive and significant influences on emissions, irrigation subsidies have a relatively greater emission-enhancing effect. Key findings claim that the existing provision of subsidies is not sustainable because it leads to the excessive use of subsidised key inputs leading to greenhouse gas emission. The fact is that the pollution effects of even a limited amount of input are significant. A reduction in input subsidy which is leading to environmental degradation is a need of the hour. The farmers may be provided direct income support as compensation. Further, making a gradual shift towards subsidising organic farming practices called ‘smart subsidies’ and optimising input use are very crucial to achieve sustainable outcomes from the agricultural sector in the long run. JEL Codes: C22, H25, O13, Q18, Q53