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  1. And now, Congress looks at income-support plans

And now, Congress looks at income-support plans

Have to cut other subsidies to fund these, but unlike MSPs, they don’t distort cropping patterns, can’t be gamed

By: | New Delhi | Published: August 7, 2018 3:57 AM
Together with farm loan waivers, which are now becoming a common feature in every poll manifesto, income-support schemes, too, are likely to figure permanently as electoral promises.

Together with farm loan waivers, which are now becoming a common feature in every poll manifesto, income-support schemes, too, are likely to figure permanently as electoral promises. The Congress party, for instance, is believed to be toying with the idea of an income-support scheme for farmers to supplement a loan waiver in Madhya Pradesh. Neither loan waivers nor price-support schemes would have been needed had the agriculture sector seen some reform, but in its absence, governments both at the Centre and the state have been forced to take other measures to alleviate farm stress. Given how the local government’s price support scheme in the state came a cropper, the choice of an income-support scheme—a la Rythu Bandhu—for farmers in MP is not a bad one. Essentially, the price-support scheme rolled out by the Shivraj Singh Chouhan government, which had envisaged compensating farmers for the difference between the market prices and MSP, needed to be aborted because the mandi prices of crops such as chana and masoor had collapsed to levels well below their respective MSPs. In short, the system had been gamed, forcing the state government to abandon it.

To be sure, any income-support scheme is expensive since the cash benefits are typically provided over and above various other benefits—including crop insurance and loan waivers. While in Telangana, the Rythu Bandhu has been rolled out fairly effectively because most land holdings have been titled, in MP the process could turn out to be a little more tedious. Nonetheless, former chief economic adviser Arvind Subramanian wrote recently that he believes a modified version of the Rythu Bandhu policy could be the future of India’s agricultural policy and also the forerunner of universal basic income (UBI). Subramanian, too, had pointed out the scheme could become financially unsustainable since the state would also need to cover the costs relating to subsidies for a host of inputs such as fertiliser, seeds, power and water. What could help make the scheme less of a financial burden is to roll it out as a replacement for all the other benefits that farmers are given, or at least some of them. This, then, would result in a big saving in costs—whether on state machinery or manpower—as well as in reducing leakage, corruption and inefficiencies.

While in Telangana all farmers who own land get a cash support of Rs 4,000 per acre per season for both the kharif and rabi crops, the Congress proposes to provide every small and marginal farm household a monthly cash income of Rs 3,000; this is estimated to cost Rs 23,000 crore annually. It is not a small sum, and had it been invested in building up the necessary infrastructure, farmers would have been in a much better shape today. While there can be no substitute for agricultural reform—more mandis or markets which fetch farmers better prices and a robust eNAM—an income-support scheme would probably result in fewer distortions in the cropping pattern than an MSP; farmers would desist from growing crops that fetch a better price like paddy and wheat, which are the most procured crops, or even sugarcane, which uses up disproportionate amounts of water. Well-designed income-support schemes, as Subramanian said, could free up resources that could then be ploughed back into the sector to create infrastructure.

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