An autonomous research institute under the Ministry of Finance


Subsidies and the Environment with Special Reference to Agriculture in India

Publication date

Jan, 2001


Report submitted to the World Bank – IGIDR.


Rita Pandey and D. K. Srivastava


The objective of this study is to examine the interface between subsidies and environment with a view to highlighting both the positive and perverse roles that subsidies may play in affecting the environment. The study estimates environment related subsidies that emanate from government budgets. Main results of this analysis are: subsidies identified as having a bearing on the environment account for less than one percent of GDP (center and states considered together) – of these subsidies having a clear positive impact on the environment are only a small fraction; and environment-related subsidies emanate relatively more from the state budgets. Conventional economic analysis obscures the degradation of the natural resource base that supports the economy, including the agriculture of a country- changes in productivity and availability of natural resources simply are not taken in to account. Economic research documenting the relationship between farm practices and environmental degradation is scanty. This report develops an analytical framework, which allows identifying the impact of input use on environmental quality and crop yield. The model incorporates the environmental variables directly into the farm production function. From the framework, environmentally optimal levels of input use can be identified, which also serve to derive the input price changes needed in order to move farmers towards the social optimum.

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