Even though it may be for political leverage, it helps the country that Indian farmers and the financial stress they have endured through the years is centre-stage today and politicians are desperately looking for ways to alleviate the grave reality. While PM Modi clarified that his government does not favour a farm-loan waiver, there is a high chance that he decides to roll out an unconditional direct income transfer (DIT) to all-India farmers soon. Are there learnings that one can draw from states who have already implemented or are in the process of rolling-out a DIT? We explore two of the biggest schemes, Telangana s Rythu Bandhu Scheme (RBS) and the Odisha government s Krushak Assistance for Livelihood and Income Augmentation (KALIA).
There are other states that have announced such schemes like Andhra Pradesh, Karnataka, Jharkhand and West Bengal. While most of these schemes are scheduled for a roll out in the upcoming financial year, others target beneficiaries beyond farmers. In comparison, Telangana s RBS has been implemented since May 2018 and Odisha s KALIA is in the process of being rolled out, where the first phase of payments is to be released by January 25, 2019. Both are what Arvind Subramanian, former CEA to government of India, would have called a QUBI or quasi universal basic income scheme, where the income transfer is universal within an identified group of individuals, which in this case is farmers.
If RBS was an embryonic version of UBI, then named after Lord Jagannath, the KALIA scheme is its next level. Many problems associated with RBS are being addressed by KALIA. In the attached graphic, a basic comparison between the caveats of the two schemes is presented.
Exclusion of sharecroppers and the landless was one of the biggest problems with RBS. Under KALIA, this problem is resolved as it has three components which cover landowners, sharecroppers, landless labourers and other vulnerable agri-HHs.
By making payments on a per acre basis, RBS is criticised for being regressive, i.e. as landholding size grew, so did the payment. As per calculations based on Telangana agri-landholdings and the RBS payout schedule, it was found that about 38% of RBS payouts went to farmers with greater than 2 hectares. KALIA is progressive as it makes a standard payment to all on just the condition that the individual is identified as a beneficiary. Besides, KALIA is only designed to deliver to small and marginal farmers, all others are outside the ambit of the scheme. Other farmers excluded from KALIA include ones paying taxes or having a government job.
As per NSSO and NAFIS data on farmer incomes, as landholding sizes shrink, an increasing share of incomes come from livestock. Payments under RBS are meant only for farmers growing crops, however, KALIA has announced support to its landless for livestock and allied activities with an amount of Rs 12,500/year.
In terms of actual reach, however, both schemes were found inadequate. Upon comparing targetted number of scheme beneficiaries with actual state agri-workforce (sum of cultivators and agri-labourers (main plus marginal) from Census 2011), actual coverage was found to be lower than what is suggested. Nevertheless, as both schemes are a work-in-progress, reach is likely to improve overtime. There is no dispute, however, that both are good examples to be studied if a national DIT is on the cards.
What are key takeaways from the two schemes? Amongst other nuances, three things emerge. The first amongst them is the fact that creating a robust list of beneficiaries is most crucial. A list that excludes the better-off and includes all those vulnerable associated with agriculture is the foundation of a successful DIT. Centrality of data on land records in this case cannot be overstated they need to be updated, linked to unique farmer IDs (possibly Aadhaar) and to bank accounts of farmers. A 100% financial inclusion is indisputably a necessary condition in this case. Other databases like ones from the Census and farmer schemes can also be synergised for the purpose.
Secondly, finding funds to finance this DIT while balancing the fiscal deficit is crucial. A pan-India DIT with a payment of Rs 4,000 per acre twice a year on the country s net sown area of about 140 million hectares is likely to cost about Rs 3 lakh crore. Cost sharing between the Centre and states (possibly in a 70:30 ratio) can resolve this issue to some extent, but for non-BJP states, to come to terms on this may be a long haul. This brings us to the third takeaway.
A national DIT on lines of RBS and KALIA is likely to be a transfer that is made over and above existing input subsidy schemes and, therefore, the fiscal implication of this looks dauntingly high. But what if the government decides to subsume input subsidies like seed, fertiliser, power (and, possibly, food grains, at least in the better-off cities/states) in DIT? Then the saved resources can be used to finance a perhaps larger DIT.
In fact, a national DIT has scope of becoming the new face of Indian agri-support policy schemes. Such transfers reach more beneficiaries, save on pilferages, is less market distortionary compared to schemes of farm-loan waivers, MSP increases (ones that alienate markets) and inefficient input subsidies and is good economics and, evidently, good politics.
-The author is senior consultant at ICRIER