Farm relief: Modi government’s cash transfer to cover 90% of sown area

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New Delhi | Updated: January 14, 2019 6:53:31 AM

Cash transfer of Rs 4,000/acre in a year by the Centre for land-owning farmers appears to be the proposal that has gained the most traction.

The fiscal burden will shift to the next fiscal year, giving room for the Centre to simultaneously rework some subsidies being given to farmers such as that on fertilisers and crop loans. (Representational photo)

The Centre is weighing a host of options to provide income support (cash transfers) to farmers and other low-income population with an underlying notion that the huge financial resources for the venture will be shared between it and the state governments. The fiscal burden will shift to the next fiscal year, giving room for the Centre to simultaneously rework some subsidies being given to farmers such as that on fertilisers and crop loans.

According to official sources privy to the discussions, cash transfer of Rs 4,000/acre in a year by the Centre for land-owning farmers appears to be the proposal that has gained the most traction.

Although whether this is to be open-ended to include all farmers or restricted to small & marginal and medium farmers, is still to be decided. The states are expected to make a matching contribution to make the combined cash transfers to be substantial.

The scheme is modelled on the Telangana’s Rythu Bandhu scheme (under which landowning farmers get Rs 8,000/acre/year), which has recently been emulated by Odisha and Jharkhand.

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The annual cost of such a move for the Centre is seen at a whopping Rs 1.3 lakh crore or thereabouts if no exclusion criterion is employed and all farmers are beneficiaries (given the country’s net sown area of 34.58 crore acres). The cost could be some Rs 58,000 crore if the succour is restricted to ‘small and marginal’ farmers (with holdings up to 2 hectare) who cultivate on 45% of the country’s net sown area and if the ‘medium’ farmers (holdings between 2-10 hectares) are also included, then the cost could be roughly double that amount. Large farmers (those with land holdings above 10 hectares) account for just 10% of the total sown area in the country.

“The planned scheme is much more broad-based and rational than loan waivers as most farmers don’t take loans from the banking system,” one of the sources said. As per a Nabard survey, only 36% of farmers take loans from institutional sources. With the cash transfer reaching most of the landowning farmers, the tenant farmers would also benefit as pressure on them to pay landowners would decrease in case of crop failures, the source explained.

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The Centre expects more states, especially the BJP-ruled states to pitch in and complement its scheme. Preparations would take a couple of months at least, but the actual cash transfers could still commence in April-May coinciding with the general election.

Fertiliser subsidy costs the Centre about Rs 70,000 crore annually while interest-subsidy on crop loans costs another Rs 15,000 crore a year. Likely transfer of a portion of the RBI’s reserves of Rs 2.5 lakh crore parked in its contingency and asset development funds is seen as the major source for the Centre to fund the scheme next year.

The sources said the in the interim budget to be unveiled on February 1, finance minister Arun Jaitley may announce an outlay for the scheme for the April-June period.

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Besides cash transfer to the farmers, the Centre is also looking at large basic income scheme to be targatted at the 10.75 crore households or bottom 40% of the population who are already covered under Rs 5-lakh free healthcare cover under the Pradhan Mantri Jan Arogya Yojana or Ayushman Bharat. However, this scheme may not be announced soon as it would require more planning, officials felt.

Former chief economic adviser Arvind Subramanian wrote in FE a few months ago, “More generally, QUBIs (quasi-universal basic income) are schemes in which transfers are given to everyone who meets an easily identifiable criterion.” He added that since payments to households under the Rythu Bandhu scheme are based on farm size, they can become regressive (hence the pressures to exclude large farmers from the scheme). “In contrast, a pure UBI in which the same rupee amount is given to all households will be progressive because the effective subsidy rate (transfers as a share of household income) will be greater for the poor and decline with rising income.”

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Odisha and Jharkhand have recently come out with their variants of such largess in the first week of January. Under its Mukhya Mantri Krishi Yojana, the Jharkhand government will pay Rs 5,000/acre every year to the state’s 22.76 lakh small and marginal farmers, at an estimated annual cost of Rs 2,250 crore, starting April 2019. Telangana is paying the assistance to all farmers on the basis of land records, irrespective of rich or poor. Under Odisha’s KALIA scheme, small and marginal farmers (estimated at about 30 lakh) will be paid Rs 5,000 per acre every season for the next five crop seasons, starting Kharif 2019. It also has a provision for cash transfers to landless farmers.

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