Designing better input support programs: Lessons from zinc subsidies in Andhra Pradesh, India

Abstract

India has one of the largest agricultural input support programs in the world, delivered in the form of subsidies to farmers, raising concerns about its sustainability. This paper evaluates the performance of one such support, the micronutrient subsidy program in the state of Andhra Pradesh (AP) and presents a case for providing this support in the form of direct cash transfers. Under the program, key soil micronutrients- zinc, boron, and gypsum were distributed free of cost to farmers living in micronutrient-deficient areas, with identification and targeting managed entirely by the state. We survey 1621 farmers, 61 agriculture extension officers, and 78 agriculture input dealers to assess the efficacy of the program and to identify bottlenecks preventing effective targeting, with a focus on zinc. We find that use of non-subsidized zinc is high in AP, and awareness of benefits of zinc and physical access to input dealer shops are significant predictors of zinc use. We argue that the free provision of micronutrients may have created demand among farmers, but there is little justification to continue subsidizing such a program at such high rates or resorting to public distribution. We find that micronutrient procurement and distribution has become a burden on extension staff and crowds out the private sector. Our analysis shows that the subsidy can benefit more farmers if it is channeled through the network of private fertilizer dealers. We use administrative data on budgetary outlays and digital soil maps to suggest fiscal redistribution in the form of direct cash transfers that may ensure more effective targeting at a lower cost to the state.