Why budget relief a drop in the ocean for farm distress

The schemes for cow protection and fisheries are steps in the right direction, but they don’t solve the farmers’ current problems

Why budget relief a drop in the ocean for farm distress
Illustration: Shyam Kumar Prasad

Farmers’ hopes for a meaningful package from Modi government have evaporated with the announcement in the Union Budget 2019—Rs6000 per annum direct income support to small and marginal farmers seems like a drop in the ocean, if not rubbing salt on their wounds. Even states like Telangana and Odisha have done much better with their Rythu Bandhu and KALIA schemes, respectively. After the drubbing in state elections, one was hoping that NDA government will take major steps towards helping farmers. The Modi government had a golden chance to compensate farmers for their losses due to low prices, and even invite states to join the Centre’s scheme for a major relief package for farmers. But, that chance is lost. On the contrary, middle-class got better income tax sops through raising of exemption limits, which only shows a clear bias in policy that implicitly discriminates against farmers.

The macro-economists and bankers may be happy that the damage to fisc has been contained and no loan waivers have been announced except enhanced interest subvention on loans. It must be seen that this Rs72,000 crores as direct income support to farmers is no where near the annual loss of about Rs2,65,000 crores that farmers have been suffering due to low prices they have received due to restrictive marketing and trade policies all these years. Until major marketing reforms are ushered in, there is no hope of doubling farmers’ real incomes by 2022-23.

The enhanced interest subvention only leads to diversion of funds from agriculture to non-agri uses. There is ample evidence that in some states the agri-credit is even more than the value of agri-output! So, this scheme of interest subvention needs to be reviewed and fixed. The real need is to expand the reach of farmers to institutional credit. The Kisan Credit Card (KCC) was an innovative policy of the Vajpayee government, but the latest survey of NABARD on Financial Inclusion (2015-16) showed that only about 10% of farmers are using these cards. One needs to understand the constraints to it and find solutions to expand and deepen its coverage.

The schemes for cow protection and upgrading their breeds, and having a separate outfit for fisheries, are steps in the right direction, but they can’t make any difference to the farmers with regards to their current problems. It will take years before any of these schemes can deliver. Increasing milk production, without its pricing being competitive and remunerative for farmers, may not do much benefit.

So, now where will the farmers turn? Farmers may look towards the Congress or a ‘Third Front’ coalition, for what they can promise and deliver on the farm front. The Congress president’s mantra of loan waiver may appeal to many, but even that will help only 30% of peasantry. He has also announced that, if voted to power, his government will announce a minimum income for the poor. But, how much of India’s population is poor?

There has been no robust figure forthcoming from the government-side in the last five years. Going by the Tendulkar poverty line, the previous government had come up with an estimate of about 22% poverty in the country in 2011. It was contested by many, and later, the Rangarajan Committee had put it at 30%. The World Bank’s poverty clock puts it at 5.5% lately. But even if one thinks of roughly one-fifth of India needs income support of say Rs5000 per month (Rs60,000 per annum), the bill will amount to about Rs3.5 lakh crore. It is doable if the food subsidies and MGNREGA are drastically pruned and targeted to this bottom 20% of the population. Food subsidies and MGNREGA are costing more than Rs2.2 lakh crore, and a sizeable part of this either leaks away or is not utilised productively. Similarly, fertiliser subsidies can also be made through direct income support to farmers with land-holdings of even up to 4 ha, and their markets freed. Gradually, the states can be encouraged to give power subsidy through direct income transfer and charge the market price for power, recovering at least the cost of suppy. These can then be fundamental reforms, switching from price policy approach to income policy approach, for helping the small and marginal farmers and poor consumers. If Congress or the Third front can do this, it will be good economics and good politics. The Modi government has frittered that chance any way, and it may inflict a heavy political price.

The simmering problems of cow menace in several states, especially Uttar Pradesh, and rising cane arrears, which may cross Rs12,000 crore in that state alone, may cause lot of political pain to the NDA government in the Lok Sabha elections.

The current problems of peasantry is not on the supply-side, but on the demand side, relating to low prices. The NDA’s much touted formula of 50% margin over A2+FL osts has miserably failed. The trial of Bhavantar Bhugtan Yojana (BBY) in Madhya Pradesh did not succeed either, and the BJP lost the assembly elections in the state. It is good to see that, finally, the NDA has moved towards an income policy approach by announcing Rs6,000 per annum to small and marginal farmers, but it is too little and too late. In proverbial terms, this is like ‘uunth ke muh main jeera’ (a drop in the ocean). The NDA had decided to take a risk for its second term. It makes the game easier for Rahul Gandhi who has already promised some minimum income for the poor. Depending upon how big it is, and when it is delivered, and how, we will see whether it acts as a pre-emptive (or surgical strike) on the Modi government.

-The author is Infosys chair professor for agriculture, ICRIER

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