Pumping money without ideas? Funds govt canalising into rural areas may prove to be ineffective

Published: February 18, 2020 3:45:05 AM

Without a bolder vision, the monies the government is canalising into rural areas may prove to be ineffective as far as doubling of farm incomes is concerned.

agriculture, agriculture sectorhe rising costs of cultivation accompanied by uncertain and fluctuating crop prices have squeezed farm incomes over a long period now, more so after 2012 when global agricultural commodity prices slumped.

By Arindam Banerjee

The Union Budget FY21 appears to be farmer-friendly, as perceived from the finance minister’s speech and the post-Budget media coverage. Coming at a particularly difficult situation of economic slowdown, this year’s Budget proclaims to address certain structural issues within the agrarian sector. Given the longer and persistent rural distress and that stagnating farm incomes are one of the major sources of current malaise in the economy, a focus on agriculture with a goal of doubling farmers’ income by 2022 is surely a worthwhile challenge.

That said, a closer look at the Budget announcements and allocations raises certain questions regarding the government’s approach to the problems of the farm sector. Clearly, over the last couple of years, there has been a distinct increase in the agriculture budget compared to the past. As per the revised estimates for 2019-20, the share of agriculture in the total Budget is 6.2%, and 7.3% as per the Budget estimates presented for 2020-21 (Decoding the Priorities, CBGA, 2020). This is markedly higher than the 2.5% of 2018-19 and even lower shares for earlier years.

This enhanced allocation for agriculture has been distinctly accompanied by a shift to cash transfers for farmers, driven by PM-KISAN (direct income support of Rs 6,000 annually per beneficiary farm household). In fact, of the total increase of Rs 55,828 crore in the agriculture budget between 2019-20 (RE) and 2018-19, Rs 54,370 crore is on account of PM-KISAN transfers (Expenditure Budget, 2020-21, GoI). This year, the picture is no different. Nearly 6.2 crore farm households received these transfers (www.pmkisan.gov.in).

This, however, implies that allocations for traditional interventions related to agricultural production and credit needs have stagnated in nominal terms and not enough money has been put on novel ideas like ‘solar power for farming’ and ‘boosting farmer producer organisations’ that were mooted in the Budget speech.

Such a shift towards cash transfers may not go a long way in addressing the persisting problems of the agricultural sector. The rising costs of cultivation accompanied by uncertain and fluctuating crop prices have squeezed farm incomes over a long period now, more so after 2012 when global agricultural commodity prices slumped. Rising indebtedness to both formal and informal sources of credit have further worsened the farmer’s economic calculus. The situation was aggravated by the body-blow delivered by demonetisation in November 2016, which crippled the primarily cash economy of rural India. Announced between two cultivation seasons, demonetisation affected the prices of the Kharif output adversely and forced farmers to either abandon Rabi sowing or do so based on onerous input credits.

With this long-term intensification of rural indebtedness, a shift of government support to cash transfers implies that much of this support will be channelled into paying off accumulated debts. With the pervading hierarchy that exists in rural societies, this would present an ideal opportunity for moneylenders and other creditors to exact their outstanding payments from farmers. Only a small fraction of these cash transfers will actually be used for bolstering the farm production matrix.

The government can argue that pumping this money into rural areas is the need of the hour, given that rural demand has experienced a slack and consequently dragged down overall economic growth. However, when one looks at other allocations like MGNREGA and food subsidy, it is evident that the government is already cutting back on these alternative ways of boosting demand in rural areas. As per the Budget estimates, between 2019-20 and 2020-21, the MGNREGA allocation has been increased by a paltry Rs 1,500 crore. At Rs 61,500 crore for the coming fiscal, it is nominally less than the actual spending on the programme in 2018-19.

Budget allocations to food subsidy for 2020-21 are less by a whopping Rs 18,560 crore, indicating the government’s intention of scaling back PDS operations. This does not seem prudent, given the historically high stock of foodgrains of 84.7 million tonnes (January 2020; www.fci.gov.in) that the government is carrying. Unlike the prevailing idea that high food stocks are due to overproduction by farmers, they rather reflect the lack of purchasing power of the masses, primarily in rural areas. The increase in grain production over the last couple of years has been a modest 10% than the average production over 2012-17 (based on figures from the Economic Survey, 2020) and does not warrant such high accumulation of food stocks.

Any money that rural households save due to subsidised food provisioning essentially creates or restores demand for other mass consumption goods. With such high food stocks, this is the best opportunity for the government to create demand through food subsidies and food-for-work programmes, and, simultaneously, save on their costs of carrying these stocks.

The ‘sound finance’ and ‘free market’ philosophy that prevents the government from undertaking more robust procurement and distribution measures in agricultural markets may not be the most appropriate economic principles to follow in the midst of a economic slowdown. Similarly, increasing the coverage of farmers under institutional credit sources needs to be prioritised to shield them from the vagaries of rampant usury. Without a bolder vision, the larger amount of money the government is canalising into rural areas may still prove to be ineffective as far as doubling of farm incomes is concerned.

The author is associate professor, Economics, School of Liberal Studies, Ambedkar University, Delhi

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