Narendra Modi, India’s prime minister, speaks during a joint statement with U.S. President Donald Trump, not pictured, in the Rose Garden of the White House in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)  

Modi’s Income Transfer To Farmers May Run Into These Bumps 

Ending weeks of speculation, the government announced an income support scheme in the budget as Prime Minister Narendra Modi looks to woo voters ahead of the next general election.

The Pradhan Mantri Kisan Samman Nidhi promises to transfer Rs 6,000 a year in three equal instalments to all farmers who own under two hectares of land. Finance Minister Piyush Goyal allocated Rs 20,000 crore for the current financial year and Rs 75,000 crore for the next. No other details are available.

How Effective Will It Be?

The scheme targets farmers with landholdings up to 2 hectares. The share of such small and marginal holdings in the operated farm area stood at 47.3 percent, according to the farm census of 2015-16.

But the scheme does not define who is a farmer and how the scheme will identify farmers in such a short span of time, Abhijit Sen, a former member of the Planning Commission, told BloombergQuint. Though land records are available, they are not meant for facilitating handouts of this kind, he said, adding that they can only be revised over a period of time.

The central government scheme appears to be modelled on the lines of Rythu Bandhu, Telangana’s flagship scheme. But unlike Rythu Bandhu, which promises Rs 4,000 per acre, the payout under the central scheme is too low for it to have a significant impact, said Avik Saha, co-founder of Swaraj Abhiyan. Unlike existing schemes such as rural jobs guarantee, it’s not indexed to inflation, which is a drawback and indicates lack of seriousness of the scheme, he said.

That’s not to say that economists consider Rythu Bandhu the best possible model. It ignores tenant farmers and inequality in land holding, Soumya Kanti Ghosh, chief economic adviser at State Bank of India, had said in a research note last year. There were 14.4 crore such farm workers in 2011, according to a report by the panel set up to suggest ways to double farmer income.

Problem Of Targeted Schemes

India’s tryst with targeted schemes is ridden with leakages. The Economic Survey of 2016-17 said the existing welfare schemes are riddled with misallocation and leakages because of which genuine poor find themselves unable to access programme benefits.

The survey found a steep shortfall between the overall spending on the top six government welfare schemes and the share received by the poor. The districts in red are those with maximum misallocation, yellow indicates moderate while green is indicative of low misallocation. The worst-affected districts are also some of the poorest districts in the country.

Modi’s Income Transfer To Farmers May Run Into These Bumps 

The Prime Minister’s Kisan Samman Nidhi could face the same troubles that other targeted schemes have.

Ghosh, however, said Direct Benefit Transfer, enabled by Jan-Dhan, Aadhaar and Mobile, is gradually paving the way for more efficient delivery and limiting scope for misallocation and leakage.

Rising Farm Expenditure

Concerns over lack of fiscal space to accommodate farm income support have pre-dated the government’s announcement. Increased fiscal outlays as a result of the introduction of a new direct income support scheme for farmers and subsidised agriculture loans will have a fiscal cost, Moody’s Investor Services had said ahead of the budget.

One expectation was that the scheme would replace some of the existing subsidies, such as those on fertiliser. However, the government sees this as a top-up and not a replacement, said Sanjeev Sanyal, prinicipal economic adviser to the Government of India.

We are explicitly making the point this is not what is the full-fledged UBI (Universal Basic Income), which was discussed and included a rollback of subsidies. This is a top-up. It is a compensation, as I said, for essentially deflating food prices, of which, incidentally, the rest of us are beneficiaries. So this is sort of a transfer of resources to those who have made this happen.
Sanjeev Sanyal, Principal Economic Adviser

At about 0.5 percent of the GDP, the scheme is far more focused and far less expensive than feared, said Sajjid Chinoy, chief India economist at JPMorgan. Siddhartha Sanyal, chief economist at Barclays India, agreed. The current payout makes fiscal deficit more manageable, he said.