Farm relief: Replicating the Rhythu Bandhu scheme may prove expensive

Updated: December 26, 2018 7:37 AM

NITI Aayog came out with a strong comment that this is no solution to farm distress (I must have missed similar comments when Uttar Pradesh, Maharashtra, etc, announced similar waivers).

NITI Aayog CEO Amitabh Kant, delhi air crisis, delhi air pollution, narendra modi, delhi ncr, air pollution, news, india news, latest newsThe Centre can fund 60% and ask the states to supplement 40% or higher if they wish.

By T Nanda Kumar

During the campaign stage of the recent Assembly polls in Madhya Pradesh, Chhattisgarh and Rajasthan, Congress chief Rahul Gandhi had promised farm loan waivers if his party came to power in the three states. It did, and the newly elected chief ministers of each of the three states promptly issued orders waiving farm loans, albeit with conditions. NITI Aayog came out with a strong comment that this is no solution to farm distress (I must have missed similar comments when Uttar Pradesh, Maharashtra, etc, announced similar waivers). They said that they will come out with a “much better solution”. Something new in the offing? Something different from the recently finalised Doubling Farmers’ Income report? Or a rehash of old ideas? Time will tell. Meanwhile, the chorus for loan waivers will get louder.

First, let us examine the optics of a waiver. Nobody denies farm distress. It has been there for quite some time, and has become more acute recently. The new MSP formula, touted as the silver bullet along with PM-AASHA, has not made a discernible impact—as is obvious from the farmers’ views on the ground. Will the farmers inspired by the “better and smarter” solution in 2019? Wait and watch! They know that they can raise their voice now and will be heard. They point out that while farm loan waivers are vehemently opposed by bankers and some policy makers, there is tacit support for “hair cuts” for large corporate loans. Can any banker explain to them the difference between “ loan waiver” and “haircut”, except that loan waivers are paid out of tax payers’ money and “haircuts” from depositors’ money—and haircuts are for those who can afford to go to ‘salons’? I do agree that loan waiver is not a solution to the farm crisis and benefits only those who have accessed institutional credit. But, I see no let up in the demand for farm loan waiver during 2019.

Agriculture in 2019 will open with at least two election promises: of MSP continuing at 50% over costs, either the present formula or revised to C2 costs, and a farm loan waiver of short-term crop loans. Implementation of MSP is clearly ineffective since the market realities are not aligned with it. There is the new and ambitious agriculture export policy. And the much publicised e-NAM. Would someone in the know of things care to explain to the farmers how the MSP regime, PM AASHA, e-NAM and the agri- export policy operates on the ground and will benefit farmers? Or are they grand silos, one taller than the other, competing against each other?

The model that seems to have captured the imagination of politicians and economists alike is Telangana’s Rythu Bandhu Scheme (RBS) model. A flat (untied) basic cash (income/ investment) support to farmers has clearly demonstrated its advantages. This could be the Quasi Universal Basic Income (Investment) Support (QUBIS, as Arvind Subramanian calls it). Currently, Telangana pays an amount of Rs 4,000 per acre (Rs 9,884 per hectare ) per crop season. This seems to have worked politically, and there could be takers for this. RBS has the advantage of reaching all farmers (except tenant farmers) who are into crop husbandry irrespective of whether they have access to bank, private or no credit at all. It is a direct, uncomplicated payment to farmers. Is this the way forward? Come 2020, this may well be. Sceptics will point to the exclusion of tenant farmers. But, we have to start somewhere and let the market forces respond. If the latter do not, positive interventions may be required later. In any case, the good cannot wait because the best is yet to come!

If such a scheme were to be rolled out nationally, what are the implications? Given 140 million hectares of net cultivated area, a grant of Rs 20,000 per hectare will mean a budget out-go of Rs 2.80 lakh crore. If total cultivated land is taken at 155 million hectares, the requirement will be Rs 3.10 lakh crore per year. This number could make any finance minister jittery. Let us work our way around this. If the government were to cap the direct cash support (DCS) to Rs 40,000 per farmer, all farmers owning land upto 2 hectares will get the full benefit and others will get a maximum of Rs 40,000 per year. This would entail a budget outgo of Rs 2.29 lakh crore (Rs 20,000 per ha for the first two categories in the accompanying graphic, and Rs 40,000 per farmer for the rest). If we restrict this to farmers owning two ha or less, the requirement will be of Rs 1.49 lakh crore.

The Centre can fund 60% and ask the states to supplement 40% or higher if they wish. If 60% funding is agreed to, the outgo will be restricted to Rs 1,38,000 crore if all farmers are covered. The requirement can be brought down further by exempting corporate holdings, crops that are environmentally unfriendly or unhealthy (like tobacco). Such a scheme has clear advantages. There may not be a need for more loan waivers; it will cover all farmers irrespective of access to credit; payment before each sowing season will help them get out of the clutches of money lenders; it will reduce the effective cost of cultivation; and it will not distort the market. Most important, this will find political acceptance. With this as the platform, the government can quickly move to a direct benefit transfer (DBT) for seeds, fertiliser and power instead of subsidising these. DBT will reduce the inefficiencies in these sectors and give the farmer freedom of choice. There are other issues like market reforms which are definitely a priority, but this could be the first step to real reforms in agriculture.

The author is former secretary, food and agriculture, GoI, and at present, senior visiting fellow, ICRIER Views are personal.

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