Modi Proposes Paying Farmers $10.6 Billion Ahead of Election

(Bloomberg) -- Narendra Modi’s government in India unveiled an income support program for small farmers in a bid to woo a key voter base ahead of the general election due by May.

The government proposes to spend 750 billion rupees ($10.6 billion) in the fiscal year that starts on April 1 to directly pay cash to farmers, Finance Minister Piyush Goyal said in his budget speech in New Delhi on Friday.

The populist move -- which comes just after the main opposition Congress party promised an income-guarantee program for the poor if voted back to power -- may help Modi in his re-election bid. His Bharatiya Janata Party is feeling the heat after losing control of three key states in December, where Congress, the victor, pledged to waive farmers’ loans.

Modi Proposes Paying Farmers $10.6 Billion Ahead of Election

“The program will not only supply assured supplementary income to farmers to the most vulnerable farmer families but would also meet their emergent needs especially before the harvest season,” Goyal said.

Cash Transfer

According to the budget proposal, farmers with as much as 2 hectares (4.9 acres) of land will get a total of 6,000 rupees every year in three equal installments. The program is effective from Dec. 1, 2018, with the government allocating 200 billion rupees for the current fiscal year that ends in March. It will be fully funded by the federal government and benefit about 120 million small farmers.

“It will give a feeling of additional assurance and confidence to the farmers,” Sanjay Agarwal, the agriculture ministry’s top official, told reporters in New Delhi.

The government’s allocation to the farm ministry surged 78 percent from a year earlier to 1.41 trillion rupees in 2019-20, according to budget documents.

Modi Proposes Paying Farmers $10.6 Billion Ahead of Election

The income support move comes as crop prices have fallen, fertilizer costs have increased, rural unemployment is rising, irrigation programs are inadequate and insuring against crop failure is a cumbersome process mired in red tape. As a result, farmers have increasingly turned to loans. Thousands commit suicide every year due to crop failures and high debts. The latest government figures show farmer suicides surged 42 percent to about 8,000 in 2015, when some 4,600 agricultural laborers also took their own lives.

A beginning has been made to reach directly to the beneficiaries, said Siraj Hussain, a senior visiting fellow with Indian Council for Research on International Economic Relations. “One can only hope that there will be a political consensus to deliver other subsidies to beneficiaries directly.”

Poor Farmers

India spends less than 2 percent of its gross domestic product on social security, compared with 20 percent for OECD countries. About a quarter of farmers live below the official poverty line, while 52 percent of farming households are indebted. About 800 million of the 1.3 billion population depends directly or indirectly on agriculture, which accounts for 16 percent of the country’s $2.6 trillion economy.

Bumper harvests have boosted supply after a third year of decent rainfall. The frustration for farmers centers around a decades-old government policy to support agricultural markets with guaranteed prices for 22 crops, including wheat, rice and cotton. In reality, the plan is not effective in ensuring minimum prices. India is the world’s biggest cotton grower and ranks second in sugar, wheat and rice -- all from a land mass one third the size of the U.S.

The income support initiative “would pave the way for farmers to live respectably,” Goyal said.

©2019 Bloomberg L.P.