Innovations in Incentive Policies in Indian Agriculture

Agricultural production and productivity are deeply linked with incentives, and they both are mutually reinforcing for understanding the comprehensive picture of innovations in the agricultural sector. Innovations in incentives define the policy framework for managing the inputs, output as well as the overall ecosystem in which the farmers operate. Most economies in the world incentivise their agriculture sector through an array of policies like price support based on individual commodities, regulation of markets, direct income support to farmers, subsidised inputs and investment in knowledge generation, innovations, extensions and infrastructure. Basic intension of formulating incentives is to provide cohesive environment that ensures efficient markets, remunerative prices and overall welfare of the farmers. This chapter provides highlights of agricultural policies that shape the incentive structure for farmers in India. It is found that in India, farmers are net taxed through restrictive trade and marketing policies that keep the domestic price of their produce lower than the International benchmark. Also, there is large component of subsidy in the budgetary support which crowds out investment in the sector. Therefore, this chapter gives an evaluative account of various such agricultural incentive policies and see how effective they are in terms of their reach, especially to smallholders. It also looks at whether these incentive policies are market or price distorting for farmers. And most importantly whether they are financially and environmentally sustainable for the economy. The Chapter also peeps into different innovations that are unfolding in the incentive policies to make agriculture more efficient, inclusive and sustainable.