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Direct benefit transfer no cure-all for farm crisis

NO sooner did Finance Minister Arun Jaitley say that “agriculture needs a lot of support for the Indian economy to grow at a steady pace”, hinting at the possibility of a package of proposals to be announced for the distressed agriculture sector, a wave of industry-sponsored voices across the country, including the credit rating agencies as well as the investment portfolio economists, have begun to question the need for such ‘populist decisions’.

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Devinder Sharma 
Food & Agriculture Specialist

NO sooner did Finance Minister Arun Jaitley say that “agriculture needs a lot of support for the Indian economy to grow at a steady pace”, hinting at the possibility of a package of proposals to be announced for the distressed agriculture sector, a wave of industry-sponsored voices across the country, including the credit rating agencies as well as the investment portfolio economists, have begun to question the need for such ‘populist decisions’. 

“The aggregate fiscal deficit will come in higher at 3.2 per cent in financial year 2020, which is higher than the financial year 2019 mid-year outlook forecast of 2.8 per cent,” India Ratings warns. “A fresh round of economic crisis is in the making,” screams a headline. Ever since the new governments in the Hindi heartland of Madhya Pradesh, Chhattisgarh and Rajasthan announced farm loan waivers, bankers and economists have been crying foul. Some are even questioning the fiscal prudence of providing direct income support along the lines of the Rythu Bandhu scheme in Telangana that provides financial assistance to small and marginal farmers. 

Before we try to analyse the question of fiscal imbalances, let’s first look at what measures are likely to be announced in the forthcoming interim Budget. Quoting sources, several newspapers had earlier reported that the farm package would include interest-free loans without collateral and a direct income support package of Rs 10,000 per acre per year. Among the numerous suggestions was a proposal from the State Bank of India for  financial support of Rs 12,000 per family per year in two instalments, to be split for each cropping season. NITI Aayog had its own estimates. 

Meanwhile, latest reports say that the government hardly has any fiscal space left for the proposed additional spending on agriculture. The easy option being contemplated by NITI Aayog, therefore, is to combine all farm subsidies, including subsidies on fertiliser, crop insurance, irrigation and interest subvention, and transfer it in cash to farmers. Since the Finance Minister had already budgeted Rs 70,100 crore for farm subsidies for the financial year 2018-19, the cash transfer of subsidies will not entail additional budgetary expenditure.

While news agencies say that the rupee and bonds rebounded after the report pegged the cost lower than the over Rs 2 lakh crore estimated initially, it is certainly not a farm package that is expected to enthuse farmers. Already reeling under terrible distress, with real farm incomes declining for four decades now, agriculture is in urgent need of immediate relief as well as a series of strong measures for course correction leading to an increase in farm incomes. But if direct benefit transfer (DBT) is all that the government has up its sleeve, there seems to be no respite in the offing for the beleaguered farming community.

Direct benefit transfer is basically a change in the mechanism to deliver subsidies. Launched on January 1, 2013, the focus of direct cash transfer is to bring in transparency and reduce pilferage in subsidy distribution. Therefore, DBT can by no means be considered as a direct income support measure. It only replaces the input subsidies that the farmers are getting for crop cultivation. The cash that the farmers get eventually will be used to pay for inputs such as fertilisers, pesticides and irrigation. The cash payment is merely a replacement of the subsidy component.

There is a clear difference between DBT and direct income support that the policy planners must understand. NITI Aayog, however, is giving the illusion of income support when in reality it ends up computing the total subsidy outgo and presents it deceptively as an income support of roughly Rs 15,000 per hectare. It is worrying to see many mainline economists propagating the same line. DBT is being wrongly projected as a continuation of the Telangana model of direct income support, which has now been adopted in divergent forms by Odisha, West Bengal, Jharkhand and Karnataka. 

Although agriculture needs a holistic approach to draw it out of the crisis it has sunk into over the decades, my suggestions to the government would be to initiate the following:

(1) After the farm loan waiver, which benefits roughly 30 per cent of the farming population, the remaining should be provided with a one-time direct income support of at least Rs 50,000 per family. These are the people who had timely repaid crop loans and are also in need of immediate relief. This will also ensure that credit line in future is not squeezed. As to where the money will come from, it will come from the same kitty that the economic stimulus package of Rs 1.86 lakh crore for India Inc, continuing since 2009, came from.

(2) Set up the Farmers Income Commission with the mandate to ensure a monthly income of Rs 18,000 to every farming family. The Commission for Agricultural Costs and Prices (CACP) should be renamed as Commission for Farmers Income and Welfare with the mandate to ensure a minimum monthly living income package of Rs 18,000, which should incorporate the income accruing from MSP, FPO (Farmers Producer Organisation) and other market interventions. Take the average farm income in every district, and whatever is the shortfall should be paid by income transfer directly in Jan Dhan accounts of farmers.

(3) Revisit the Fiscal Responsibility and Budget Management (FRBM) Act, which provides for a limited outlay for agriculture and rural sectors. For instance, according to the Centre for Budget and Governance Accountability (CBGA), only 6.7 per cent of the Madhya Pradesh budget in 2017-18 was spent on agriculture and allied activities, whereas 85 per cent of the population is directly or indirectly engaged in agriculture. The macro-economic policies the Reserve Bank of India (RBI) lays out, too, are responsible for keeping farming impoverished. By mandating the inflation target at 4 per cent, it actually deprives farmers of a rightful income.

(4) Expand the existing network of regulated markets. Against the requirement of 42,000 APMC (Agricultural Produce Market Committee) mandis in a 5-km radius, only about 7,600 exist at present. Also, make it obligatory for trade on eNAM (National Agriculture Market) to purchase at the MSP that is announced for 23 crops. The modal price that eNAMs provide, which is based on the average of the day’s price, is nothing but a distress price actually aimed at helping in commodity trading. It is time to learn from the failure of eChaupal that also had the same objectives as eNAM.

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