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Farmer support schemes should evolve into basic income schemes

Ravi Krishnan

In a season of loan waivers, at least some states are thinking about providing long-term structured income or investment support for farmers.

Last week, Jharkhand anounced a plan to give Rs 5,000 per acre aid to small and marginal farmers from the next financial year. Odisha has gone a step further and promised Rs 10,000 per family “as financial assistance for taking up cultivation” for the next three financial years. These are good starts but more could be done.

It’s well-known that farm loan waivers are nothing more than vote winning gimmicks and end up hurting the interests of farmers over the long term.

Typically, only the large, and relatively well-off farmers, benefit from such loan waivers. They constitute a moral hazard; repeated farm loan waivers would prompt borrowers to renege on their loans in the hope that the next election cycle will bring more loan waivers.

That said, it’s nobody’s case that the agriculture sector is not in distress and does not desperately need support. The terms of trade are weighed against the farmer. An OECD-ICRIER report calculates that since the turn of this century, farmers are paying an implicit tax of 14 percent on their gross farm receipts. Thus, a long-term solution by means of income or investment support is warranted.

Telangana’s Rythu Bandhu, announced earlier this year, which provides Rs 8,000 per acre per year to farmers was the first such scheme to provide direct support to cultivators. While such a scheme is no doubt an improvement over loan waivers, it suffers from excluding landless labourers and tenant farmers.

As Ashok Gulati, chair professor for agriculture at ICRIER, pointed out recently, “government records still show only 10 percent of tenancy in the country while ground realities are very different.” Clearly, a lot of tenant farmers who actually make a living from agriculture, and landless families, miss out from the benefit of such schemes.

Odisha’s KALIA scheme tries to solve this problem by including all families who are engaged in agriculture. But why do we need to stop at that? As India rapidly urbanises, there is a huge swathe of population in urban spaces which suffers equally. Some estimates forecast that in another decade almost 45 out of every 100 Indians would be living in urban agglomerations.

Thus, the time is ripe for income support schemes to gradually morph into a quasi-universal basic income scheme that would cover most of the poor households. As the 2016-17 Economic Survey pointed out, such a scheme would be less prone to exclusion errors because it would be executed through direct transfers to bank accounts.

As for creating the fiscal space for such schemes, remember that the central government itself runs or sponsors about 950 schemes. They cost around 5 percent of GDP and are badly targetted with benefits being cornered by the well-off and the middle class.

A fiscal space for a basic income scheme can thus be carved out by shuttering many of these. In the agriculture sector alone, for example, market distorting schemes like the minimum support price could go. A basic income scheme, that would cover the majority of the poor, would be the most equitable scheme under current circumstances.While its implementation may not be easy, the experience of direct benefit transfers and the early farm income support schemes should help in a basic income scheme design. It would only be an improvement over loan waivers and badly targeted welfare schemes.

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