Photographer: Prashanth Vishwanathan/Bloomberg

Budget 2019: Government To Provide Rs 6,000 Each To 12 Crore Farmer Families

Prime Minister Narendra Modi’s government announced a direct income transfer to small and marginal farmers to help provide support to the farm sector which has seen returns drop due to low food prices. The scheme will cost the government Rs 75,000 crore in FY20. The government will also provide Rs 20,000 crore in the current year.

According to the scheme called ‘Pradhan Mantri Kisan Samman Nidhi’:

  • A support of Rs 6,000 per year would be provided to farmers with holdings up to 2 hectares.
  • This transfer would happen in three equal instalments of Rs 2,000 each.
  • The transfers would start retrospectively from December 2018.
  • 12 crore farmer families will benefit from the scheme.
  • The scheme will be fully funded by the government of India.
  • A budget of Rs 75,000 crore will be provided for the scheme in FY20.
  • A budget of Rs 20,000 crore has been made available in the budget of FY19.

Devendra Pant, chief economist at India Ratings, said the allocated target for the farm income support will work out at about 52 basis points of the gross domestic product.

Populist measures like today’s farm relief package are intended to address the country’s aggrieved farmers as falling prices mean they aren’t able to recover their production costs. Farm distress in India, where over half of the population is employed in agriculture, is largely stemming from a sharp disinflation in the consumer food prices.

The move will give farmers some confidence in times of crisis, Arun Singh, lead economist at Dun & Bradstreet, said. “If implemented in a time-bound manner, this will also help ignite rural consumption, which otherwise is muted.” Singh, however, expressed concerns over the fiscal space in FY20.

The scheme along with the existing Fasal Bima Yojana, has enabled the government to cover the agricultural sector end-to-end, Ranjan Kumar Ghosh, professor at Centre for Management in Agriculture at Indian Institute of Management Ahmedabad, said. “While the government has refrained from a farm loan waiver, farmers can use the income to repay loans”

Rupa Rege Nitsure, group chief economist at L&T Finance Holdings, however, expressed her doubt over the extent to which the scheme will be able to tackle the “long-dated” and “structural issue of lack of fair remuneration” to farmers. The success of the scheme, she said, will depend on how the next government views it.

Bumper harvests have boosted supply after another year of almost normal rainfall. That’s led to depressed prices. And even after the Modi government tried to address the problem through a hike in minimum support prices for some crops last year, issues related to procurement have led farmers to sell to private buyers at lower costs.

Besides, rising fertiliser costs, rural unemployment, inadequate irrigation, cumbersome insurance for crop failure, have increasingly driven farmers to taking loans. That has left them indebted. According to the last National Sample Survey in 2014, about a quarter of Indian farmers live below the poverty line, while over half of the farming households remain in debt.