Will FM bite the bullet on income support to farmers?

Being announced just months before the general elections, finance minister Arun Jaitley's interim Budget is expected to be big on the farm sector.

One of the possible announcements could be income support to farmer to tackle the current farm crisis. The various models of this scheme being discussed mostly involve direct cash transfer based on land ownership and merger of existing subsidies.

Pravesh Sharma, co-founder and CEO, Kamatan Farm Tech Pvt Ltd, believes the farmer income assistance by itself would not take care of the agricultural distress. The former bureaucrat said the Budget and agri policies need to give a more comprehensive look at issues relating to capital, technology, markets, pricing and others.

"That by itself will not move the needle too much for the farm distress. Even if it is a generous income support for farmers, that alone will not solve the problem. That is because the problem is not only about cash flow, it is also about access to technology, capital and markets. All this will require work beyond the Budget. Unfortunately, that has not been seen seriously by any government for the last two decades or so," he told DNA Money.

Devinder Sharma, food and trade analyst, is emphatic that any such cash dole-out should not be linked to "acreage" and should only be for marginal and tenant farmers.

"I believe direct income support is suitable only for marginal tenant farmers. It should not be linked to acreage like in Rythu Bandhu (a version of farm income scheme introduced by Telangana government)," he said.

The agricultural analyst also feels that the amount of cash transfer being discussed was very meagre and would not have meaningful impact. According to him, it should not be anything lower than Rs 20,000 per year.

"The amount being transferred in Telangana is very less at Rs 10,000 per year. It comes to around Rs 700 per month. The amount should not be less than Rs 20,000 a year if it has to have a meaningful impact.

He urged the government to look at setting up a commission for farmers income and welfare with a mandate to assure farmers an income of Rs 18,000 per month per family.

Both agricultural experts dismiss the proposal of subsuming the current agricultural subsidies – fertiliser, fuel, electricity, irrigation, interest subvention and others– into farm income support scheme. They say it should be incremental to the existing ones and should not be a replacement.

"You can't call farmer income support a subsidy. There is an argument being made by some economists that we should discontinue fertiliser and food subsidies and give it in cash to farmers. They say it will become their income support. Sorry, there is a difference between direct benefit transfer and direct income transfer. If you merge all the subsidies and give it to the farmers that is not direct income support, it is direct benefit transfer," said Devinder Sharma.

The Kamatan Farm founder said the implementation of such a scheme would require a larger agricultural reforms at the state level.

"Has Telangana withdrawn the power subsidy or the water subsidy? Not at all. It has to be incremental. Frankly, I don't know where that kind of money can come from. Ultimately, there has to be some sort of trimming of subsidy, but whether it can be converted into cash transfer, I don't think as a former civil servant it is practical," he said.

It is estimated that a direct income transfer scheme could cost the exchequer close to Rs 3 lakh crore.

Sharma said any cash income transfer should be conditional to state reforms; "It should not be unconditional. The state must come on board, at least, with a minimal reform package. It can be linked to ensuring access to institutional credit for farmer – especially small and micro farmers – freeing up the whole marketing scenario. It should be a trade-off and not that whatever you are doing, we throw more money at the problem. That will not solve the problem".

The ex-government official also felt an increased budgetary outlay on farm loans and an efficiently directed interest subsidy would go a long way in improving the situation in the farm sector.

"I would also like to see the budgetary outlay on farm loans to be increased. It should also be accompanied by the concerted effort to identify small and marginal farmers and ensure that the bulk of subsidies is ultimately enjoyed by these farmers. That would be a big game-changer. These farmers are borrowing capital at 24%-36% rate, which frankly makes their farming operation unviable. In terms of financial instrument that's what all the Budget can do," said Sharma.

The Controller General of Accounts (CGA) data shows that of the budgeted expenditure of Rs 57,600 crore by the Ministry of Agriculture, Rs 40,449.10 crore was spent till November last year. This comes to around 70% of the total amount. The Department of Agriculture Co-operatives and Farmer Welfare had also spent Rs 32,509.14 crore during the same period against the budgeted expenditure of Rs 46,700 crore during the year.

In their Budget for the current fiscal, the government has marked an expenditure of Rs 2.64 lakh crore on the total subsidy compared with Rs 2.30 lakh crore last fiscal. Of this, Rs 1.69 lakh crore was on food subsidy against Rs 1.40 lakh crore last year. On fertiliser subsidy, the government has budgeted a spend of Rs 70,079.85 crore.

STORY SO FAR

• The NDA government’s first Budget prioritises improvement in farmer’s income
   
• Two successive years of drought – 2014 and 2015 – aggravates the farm distress
   
• Import of farm commodities and excessive crop production depresses prices. In case of many crops, it falls below the cultivation cost
   
• Introduction of Pradhan Mantri Fasal Bima Yojna in 2016 fails to make much dent in offering crop insurance
   
• The Rs 40K-cr Long Term Irrigation Fund is shoddily implemented
   
• Government approves MSP for crops last year but they fail to lessen farmers’ pain
   
• Farmers’ agitation across the country forces the government to turn attention to farmer’s income