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 Rating warns. “A fresh round of economic crisis is in the making”, screams another headline. For almost a month now, ever since the State 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 Telengana 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 a financial support of Rs 12,000 per family per year in two instalments, to be split for each of the cropping season. Niti Aayog had its own estimates.
Meanwhile, constrained by the outgo on tax revenue foregone, latest reports saying that the government has hardly 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 fertilizer, 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 fiscal year 2018-19, ending on March 31, the cash transfer of subsidies will not entail any 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 sleeves, there seems to be no respite in offing for the beleaguered farming community.
Direct benefit transfer is basically a change in mechanism to deliver subsidies. Launched on Jan 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. DBT only replaces the input subsidies that the farmers are getting for crop cultivation. The cash that the farmers get eventually will be used for paying for inputs like fertiliser, pesticides, irrigation etc. In other words, the cash payment is merely a replacement of the subsidy component.
There is a clear cut difference between DBT and direct income support that the policy planners must understand. Niti Aayog however is giving an illusion of income support when in reality it actually 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 too propagating the same line, which in real sense means that there is a visible reluctance to really help the farming sector in distress, and to initiate steps to bail it out in the long run. DBT is being wrongly projected as a continuation of Telengana model of direct income support, which has now been adapted in divergent forms by Odisha, West Bengal, Jharkhand and Karnataka.
Although agriculture needs a holistic approach to draw it out from the terrible crisis that 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 to 40 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 the 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 from where economic stimulus package of Rs 1.86-lakh crore for India Inc which still continues since 2009, came from.
2) Time has come for setting up a 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 a 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 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) Time to revisit the FRBM Act which provides for a limited outlay for agriculture and rural sectors. For instance, according to CBGA only 6.7 percent of the Madhya Pradesh budget in 2017-18 went for agriculture and allied activities whereas 85% of the population is directly or indirectly engaged in agriculture. Similarly, the macro-economic policies the Reserve Bank of India lays out too are responsible for keeping farming impoverished. By mandating the inflation target at 4 per cent, it actually deprives farmers of the rightful income.
4) Expand the existing network of regulated markets. Against the requirement of 42,000 APMC mandis in 5-km radius, only about 7,600 mandis exist at present. Also, make it obligatory for trade in eNAM markets 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 too had the same objectives of eNAM. #Direct benefit transfer no cure-all for farm crisis. The Tribune. Jan 25, 2019.
https://www.tribuneindia.com/
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