Poorly-targeted schemes undermine agri productivity, produce sub-optimal outcomes
By Prabhudatta Mishra & Prasanta Sahu
Income support schemes for farmers are in vogue and are threatening to aggravate the government’s fiscal stress, but these could become more than affordable if the various existing direct and indirect subsidies for agriculture are removed.
The Centre and states can together transfer to each farmer’s bank account more than double the amount of `6,000 being disbursed annually under the PM-Kisan scheme if the current subsidies, most of which are still poorly targeted and don’t yield the desired outcome, are dispensed with.
The current farm-related subsidies other than the various cash transfer schemes — PM Kisan (pan-India), Rythu Bandhu (Telangana), Kalia (Odisha), etc, — doled out by the Centre and state governments are worth about `1.95 lakh crore/year. These include price support schemes for crops, interest subsidies on crop loans, subsidised crop insurance (PMFBY etc.), fertiliser/seed subsidies as well as state-level power subsidies for farming but exclude irrigation-related expenditures like that on PM Krishi Sinchai Yojana since these are sort of capital investments.
Given India’s average land holding of a little over 1 hectare/farmer, the subsidy being given under the above schemes are about `12,300/hectare annually.
The PM-Kisan scheme will now cost `87,000 crore in FY20, against `75,000 crore budgetted earlier, with Friday’s decision to extend it to practically al farmers.
Farm-related subsidies by the Centre alone are `1.13 lakh crore or more than a third of `3.34 lakh crore budgeted for explicit subsidies for FY20.
Ahead of the general elections in April-May, the Centre announced the PM-Kisan scheme that offered `6,000/annum in three-installments to over 12 crore small and marginal farmers owning less than 2 hectare.
The first installment of `2,000 each has been transferred to bank accounts of 3.11 crore farmers since February while 2.76 crore of these people have also received the second installment in April-May. The scheme helped the Modi government in the just concluded general elections to return to power with a thumping majority.
Under Rythu Bandhu, Telangana gives `10,000/acre (`25,000/hectre) per annum to land-owning farmers (effective June 2019) while Odisha gives `10,000/farmer household.
If the Centre replicates Rythy Bandhu scheme on a pan-India basis, the cost would be a staggering `3.93 lakh crore, even higher than the Centre’s current budget for explicit subsidies.
The cost of a pan-India Kalia scheme would be `1.46 lakh crore/annum given the 14.6 crore farmer households in the country.
Input subsidies on fertiliser, water, power, crop insurance and agri-credit have risen from 2.8% to 8% of the agricultural GDP during FY81 and FY17. “This is the dumb way of supporting agriculture, as the marginal returns on subsidies are far below those from investments,” wrote Ashok Gulati, noted agriculture economist, recently.