Modi's $10.6 Billion Bounty Seen Giving Little Relief to Farmers

(Bloomberg) -- Prime Minister Narendra Modi’s 750 billion-rupee ($10.6 billion) annual plan to provide cash to small farmers is likely to do little to end farm distress.

Modi unveiled the program with fanfare on Sunday, depositing the first installment of 2,000 rupees each to 10 million farmers directly in their bank accounts. About 110 million more people will receive the funds by March 31 -- weeks before the world’s largest democracy goes to polls. According to the plan, farmers with as much as 2 hectares (4.9 acres) of land will get 6,000 rupees ($84) a year in three equal installments.

Modi's $10.6 Billion Bounty Seen Giving Little Relief to Farmers

"The amount is too small to be used for any work in farming and will only pay for some household expenses,” Bhupinder Sharma, a 34-year-old potato and millet farmer from Uttar Pradesh, who received the first installment in his account, said by phone on Tuesday.

The handout compares with an income of more than 44,000 rupees in real terms generated by every cultivator in 2015-16, according to government think-tank NITI Aayog. Prices of most crops are hovering below the government’s minimum support levels in the country following bumper harvests after a third year of satisfactory rainfall in 2018. Rising cost of farm inputs such as seeds, equipment and fertilizers has added to farmers’ woes.

Modi's $10.6 Billion Bounty Seen Giving Little Relief to Farmers

Eyes on Votes

Modi’s latest move is seen by many as an attempt at swinging votes in his ruling Bharatiya Janata Party’s favor. In recent months, his government announced an assortment of measures such as cutting levies on goods and services, guaranteeing a 50 percent profit on crop prices and rolling out a health care program for 500 million Indians.

The BJP’s defeat in key state polls in December, however, showed that’s not enough, with tempers in rural areas rising as crop prices crash and the poor bear the brunt of a slowing economy.

The latest pulse check for India’s economy comes Thursday. Economists forecast gross domestic product expanded 6.7 percent in the three months through December from a year earlier -- the slowest pace in five quarters as demand ebbs. The cash handout is seen as a stimulus to stoke rural consumption.

“The income support will provide some boost to the economy as farmers will spend this money on something,” said Siraj Hussain, a senior visiting fellow with Indian Council for Research on International Economic Relations. “Without enhanced investment in agriculture, it may just be a temporary relief for the farm sector.”

The main opposition Indian National Congress party mocked Modi’s program as “crumbs” and promised a more attractive alternative to the 6,000-rupees-a-year support: waiving off farm loans and implementing a minimum income guarantee program for the poor if it triumphs in the country’s general election due by May.

Investors’ Worry

Indian farmers have been struggling for a long time. Modi’s surprise cash ban in November 2016 to cut graft and the choppy introduction of a nationwide sales tax few months later hit the rural economy hard. By the time he came up with fixes, the rural distress had penetrated deeper and wider, forcing farmers to hit the streets.

“Income support is a good beginning and every small and marginal farmer will benefit from this,” said P.K. Joshi, director for South Asia at the Washington-based International Food Policy Research Institute. “They can use money to buy seeds, fertilizers and pesticides.”

Modi has invited a warning from rating companies after letting fiscal deficit widen to pay 200 billion rupees to farmers this fiscal year and 750 billion rupees in the next year starting April. Declining foreign direct investment and a weaker rupee, Asia’s worst-performing major currency so far this year, already signal limited investor appetite for Indian assets due to looming uncertainties.

While aimed at winning favor with farmers, Modi’s plan still leaves many unhappy.

“I should also get some relief from the government,” said Shaitan Singh, 50, a landless farm worker who is not part of the program. “I will vote for the party which supports us.”

©2019 Bloomberg L.P.