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Are Cash Subsidies a one stop solution for all the farmers’ woes?

Shilpi Sharma

Agriculture is not just the most important sector of Indian Economy but it is also the most essential element for our sustainable development. When it comes to the number of people employed directly or indirectly through agriculture, the number is huge as some are directly attached with the farming and some other people are involved in doing business with these goods.  Indian agriculture sector has the capacity to provide big boost to our exports. The poor condition of our farmers and their reliance on age old techniques, lack of financial institutions and poor political will has resulted in making them more and more dependent on government machinery.

The Economic Survey of 2017-18 had some key implications for agriculture sector which employs more than 50 per cent of the total workforce in India and contributes around 17-18 percent to the country's GDP. The economic survey noted that Agricultural R&D is the main source of innovation, which is needed to sustain agricultural productivity and growth in the long-term.  It is estimated that percentage of agricultural workers to total work force would drop to 25.7 per cent by 2050 from 58.2 per cent in 2001.  Agriculture sector needs the much-needed attention and 52% population of the country are looking forward to reforms. Further, the economic survey says that with growing rural to urban migration by men, there is dominance of female labourers in agriculture sector with increasing number of women in multiple roles as cultivators, household worker and labourers. Yet for the last 70 years, there has been no initiative to change the basic socioeconomic structural issues in agriculture. Rather the Government has been promoting temporary relief measures. Recently there has been an increase in the fascination of our political parties with cash relief measures to farmers rather than some structural reforms.

The Government announced Rs 75,000-crore Pradhan Mantri Kisan Samman Nidhi (PM-KSN) scheme under which Rs 6,000 per year would be disbursed in three instalments to around 12 crore farmers who hold cultivable land up to 2 hectares. This scheme was formally launched at national level by Prime Minister Narendra Modi on February 24, 2019 at Gorakhpur in Uttar Pradesh. On similar note the Congress party in their manifesto for Lok Sabha elections 2019 had announced a minimum income support scheme of Rs. 72,000 per annum to 20% of India's poorest families. The scheme was called NYAY, which was supposed to benefit around 25 crore people. The BJP called their manifesto ‘Sankalp Patra ‘and their manifesto also had some new promises for farmers perhaps the most prominent of them was pension for small and marginal farmers on reaching 60 years of age.

Here the question is not what Congress party announced or what BJP had offered in response to that, it has become a common practice among our political parties to shell out money to secure votes. If you look at the state assembly elections of various states you will find out that parties have come out victorious too with the help of such mass appealing offers. Does it not sound more like vote for money than any welfare? Giving cash subsidies as an immediate relief measure is justified such as waving off farmers loans, or providing cash subsidies in the form of various scholarships to poor children. Providing   reasonably high MSP for their crops to support the poor farmers whose main source of income is agriculture and our farms are mostly rain fed.  Without going much into the calculation of whether it can be provided or not, does it really look reasonable to give cash subsidies instead of providing the desired infrastructure. Economic development schemes must not be planned as charity programme which end up with a failure to address the purpose. The economic welfare policies till date   have not been able to control persistence of malnutrition, poverty, distress migration and low productivity in agriculture.

cash-subsidy

The matter is not about which party has come up with what kind of ambitious schemes. It is obvious for a party to come up with their best possible efforts to impress the voters. Similar types of cash benefit transfer schemes have proved to be success climbing ladder to power in various state assembly elections such as; Samajwadi party’s promise of berozgari bhata (unemployment allowance) to some extent must havehelped their party to win in 2012 Uttar Pradesh state assembly elections. Bihar Child Support Programme, a pilot conditional cash transfer programme implemented by the state government in two blocks of Gaya District, Bihar. The additional cash into the bank accounts of women had little or almost no impact on the decision-making powers of the women within their households. “Recipients of the programme, who lived in joint families, said that even the decision on when to withdraw and spend the BCSP payment was often made by the family. The decision about money and other important matters in most Indian households are controlled by men. Women lack power in matters of keeping and spending money.

Role of Direct Benefit Transfer- As we all know that Direct Benefit Transfer or DBT is an attempt to change the mechanism of transferring subsidies launched by Government directly to the people through their bank accounts. It is hoped that crediting subsidies into bank accounts will reduce leakages, delays, etc. On June 1, 2013, the ministry of Petroleum & Natural Gas formally launched the scheme direct benefit transfer for LPG (DBTL) Scheme in 20 high Aadhaar coverage districts. The subsidy on LPG cylinders being credited directly to consumers' Aadhaar-linked bank accounts is the world’s largest direct benefit transfer scheme after 2.5 crore households received about 550 crore rupees since 15th November 2014. It has surpassed number of beneficiaries in direct benefit transfer programmes in countries like China and Brazil. First, unlike the conventional reforms for reducing the fossil fuel subsidy, the DBTL scheme focuses on improving the efficiency of the subsidy delivery mechanism to decrease the leakage of the subsidised commodity to unintended users.

In 2005 and 2014, the government of Indonesia implemented an unconditional but targeted cash-transfer programme to compensate poor families against fuel price rise. Iran implemented a uniform cash-transfer scheme in tandem with an energy price hike in 2010 to cushion its poor population and make the reform politically feasible. But these were relief measures of immediate nature. Devendra Kumar Pant, chief economist, India Ratings, argued that “both income support scheme and subsidies cannot co-exist since it would create huge pressure on government’s fiscal situation.”

However, it is also important to analyse that what would be the possible psychological implication of this if we keep promoting cash transfers as a one stop solution for all problems of the poor. Cash allowances for poor will not curb the poverty it will just cut down some of its symptoms. Imagine a situation where a farmer is being given cash transfer of some amount and in return they are being expected to do without subsidised seeds, fertilizers, irrigation and electricity subsidy etc. Are we as a society grown up enough to be able to implement (on supply side) and utilise (on demand side) these funds in the most appropriate ways?  The DBT (direct benefit transfer) was launched in selected cities of India on 1 January 2013. It was launched in 20 districts, covering scholarships and social security pensions initially. Lack of computerized records for schemes to be linked to DBT was hindering its rollout. The figures show that out of 39.76 lakh beneficiaries who ought to have been covered under various schemes at that time, only 56% had bank accounts, 25.3% had both bank accounts and Aadhaar numbers, but only 9.62% had bank accounts linked with Aadhaar numbers. If we look at the challenges about the successful implementation of it there would obviously be so many hurdles, but as an emerging economy can we really afford to fund such schemes from our tax payer’s money instead of investing this money for industrial and agricultural growth and creation of jobs. Those who are visualising “universal basic income” as the next best thing that government can do for our poor should also think about right disposal of this income by the recipients. The increasing trend of offering cash subsidies can be dangerous for both the parties. Government to implement it, will surely be a burden on fiscal wellbeing of the economy and the recipients will not be motivated enough to put their best forward as they will have financial assurance by their side to rescue them.

As per a report published by the State Bank of India, the central government’s most recent budgetary allocation to subsidy and farmer support schemes totalled around ₹981 billion - which is roughly 2.9% of India’s GDP.  out of a total of 146 million farmers (as per Agriculture Census 2015-16), only 35% avail of crop insurance, 45% have bank accounts to avail of interest subsidies and 90% of all farmers receive fertiliser subsidies in some form or the other. 56% of India’s rural households do not own any land, according to the last socio-economic caste census. Many states like Jharkhand, Bihar, Gujarat, Kerala and Tamil Nadu are yet to fully digitalise land records. This will make it tougher to ensure that cash transfers reach all intended beneficiaries. Cash transfer cannot be implemented without bank accounts. According to RBI India have about 350 million bank accounts but the actual number of people holding account is low since many people hold more than one account. In order to increase the financial inclusion, the steps are being taken by the government such as zero balance account for all, but there is still a wide gap which needs to be filled.

Conclusion- Our young demography will not get any boost by such mass appealing offers instead they need employment opportunities, health care facilities, affordable and quality education and employment/self-employment generation-oriented schemes and programmes. 

References
http://www.censusindia.gov.in/
Shekhar, Shashi (21, April 2019) “Will nyay yojna remonetise Indian economy” livehindustan http://www.htmedia.in/?page_id=399  accessed on 15 May 2019
Dbtbharat.gov.in
BI India bureau (31, January 2019),” The cost of giving India’s farmers cash instead of subsidies”, Business insider
economictimes.indiatimes.com/articleshow
tMinistry of Finance, Government of India, “Economic survey 2017-18”, http://mofapp.nic.in:8080/economicsurvey/ accessed on 22,June 2019
RBI-Vision document (15 May 2019).Payment and settlement system in India: Vision – 2019-2021” https://www.rbi.org.in/Scripts/PublicationVisionDocuments.aspx?Id=921 accessed on 15 June 2019
www.worldbank.org/en/news/feature/2012/05/17/india-agriculture-issues-priorities accessed on 20, June 2019

Shilpi Sharma, Sr. Research Assistant - Giri Institute of Development Studies (Lucknow) GIDS is supported by Indian Council of Social Science Research (ICSSR) and Government of Uttar Pradesh.

Jul 14, 2019


Shilpi Sharma [email protected]

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