Rythu Bandhu scheme: Is RBS a panacea to loan waivers?

Published: January 18, 2019 3:08 AM

With the 2019 Lok Sabha elections approaching, the government plans to offer a stimulus package in the form of agricultural investment support scheme and group insurance to farmers, which could otherwise subsume the fumes of the farm loan waiver burden.

agriculture, agriculture sector, agriculture industrySince agriculture is a state subject, implementing states for RBS need to come out with an execution plan.

By Kushankur Dey

With the 2019 Lok Sabha elections approaching, the government plans to offer a stimulus package in the form of agricultural investment support scheme and group insurance to farmers, which could otherwise subsume the fumes of the farm loan waiver burden.

Can the government consider Telangana’s Rythu Bandhu Scheme (RBS) on a scaled down version? RBS has a grant component of Rs 4,000 per acre per farmer for one season (kharif/rabi). So, in a year, an eligible farmer will receive Rs 8,000 of grant for crop production that includes purchasing of critical inputs, irrigation and hiring of farm labour. The fiscal burden of the scheme can strain the Centre to the tune of Rs 600-700 billion per year, and the Telangana government has allocated about Rs 120 billion to target 5.83 million farmers under RBS in 2018-19.

The scheme ostensibly spells out farmers, who have land records, are to be covered for intended benefits. As tenant farmers are not be able to furnish land records, they will be left aside and their tyranny will continue. Therefore, there should be some alternative mechanism to cover tenant farmers. Further, RBS has some shortcomings that need to be addressed.

First, identification of the ‘right’ beneficiary could be a daunting task to roll out the scheme, as 90-110 million smallholder farmers in India have joint land records or they are yet to digitise their land records on a centralised land revenue management information system. So, land record modernisation across India, especially in eastern and north-east regions, entails a huge spending on account of state governments.
Second, monitoring of the scheme needs a fool-proof execution plan. Since agriculture is a state subject, implementing states for RBS need to come out with an execution plan. Checks and balances should plug the loopholes on whether the beneficiaries actually use the grant amount for cultivation or divert the funds to other activities? Although RBS is viewed as quasi-universal basic income (QUBI) support to farmers, the grant support is targeted for investment support in agriculture. Unless farmers’ produce is not covered under the price support scheme or fetched a reasonable market price, RBS cannot be seen as QUBI support on social and agriculture policy template.

Third, how can the Centre, in consultation with concerned states, approach and cover farm families under group life insurance scheme along with crop and livestock insurance schemes? The Centre and concerned states have to bear the insurance premium that will further increase the fiscal burden, besides the grant amount for agricultural investment support. Cost-sharing between the Centre and states should be in place before rolling out RBS. It is estimated that the cost to cover only small and marginal farmers would be to the tune of `1.4 trillion per year based on net sown area in India. The average cost of production and cropping intensity across the implementing states will give a clearer picture of budget estimate for RBS.

Fourth, the government’s policy think tank, the NITI Aayog, needs to execute RBS effectively. The think tank needs to devise a mechanism on how can RBS tie-up the existing market infrastructures and eventually function in unison. Some notable innovations in agricultural marketing and directed credit to agriculture include the eNAM (electronic National Agriculture Market), National Bank for Agriculture and Rural Development promoted grant-cum-loan based agri-business, electronic procurement system and Direct Benefits Transfer, and revamped crop and weather insurance schemes, among others.
Fifth, farmer producer companies (FPCs) can be an effective channel of implementing RBS since there has been a big push to FPC promotion since 2012-13 under the auspices of the Small Farmers’ Agribusiness Consortium to improve farmer livelihood, income generation, asset creation and well-being.

From economic rationality viewpoint, farmers need to utilise agricultural inputs (land, water, crop-protection chemicals) efficiently, and allocate capital and farm labours to demand-based production, and access market to realise a reasonable price of their produce. Promotion of FPCs and associated market and credit infrastructures can tackle all entangling issues of smallholder farmers, from crop production to marketing, integrating the factor market and the commodity or product market. Hence, RBS implementation can be effective if FPCs can be targeted to identify the beneficiaries and channelise the stipulated grant support to farmers via FPCs. Improved technology support can augment the identification process with the help of domain expert and supporting resource institutions.

To sum up, execution of RBS at the national level, if planned, should be a concerted effort and converge existing government programmes, schemes and infrastructures essential to mitigate agrarian distress. Else, it won’t be a panacea to farmer distress or farm loan waivers.

The author teaches finance at IIM Bodh Gaya

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