After its defeat in three Hindi heartland states Madhya Pradesh [MP], Rajasthan and Chattisgarh, Modi – dispensation has gone into introspection mode. The top brass has recognized that a major factor behind the set-back was growing resentment among the farmers over its policies and schemes which they felt are responsible for their stagnating/declining income.
Sensing that this could seriously affect party’s fortunes in upcoming general elections, it is brainstorming over alternate policies which could address their concerns. Taking cue from Telengana’s Rythu Bandhu under which the state gives Rs 4000 per acre to each farmer – as crop neutral investment support – before the start of the season Kharif [April-September] and Rabi [October-March], an idea is to give farmers assured monthly income support
The idea carries enormous appeal as irrespective of how things actually pan out in terms of weather conditions, crop production, the price received from sale of agricultural produce and resultant income, every farmer will be assured of a certain minimum amount coming to its bank account as financial assistance from union government. Taking this on board will make a huge dent on its budget.
Taking Rs 2,500/- per month as income support [a figure being talked about], for about 120 million land owning farm households, the government will have to shell out Rs 360,000 crore per annum. There are an equal number of landless workers who mostly work on farms. Fairness demands that they too can’t be left out. Giving them income support at the same rate would cost another Rs 360,000 crore. So, a total of Rs 720,000 crore will have to be given.
Already, the government is assuring minimum support price [MSP] – the rationale behind this being to prevent loss of income in case the actual realization from sale falls short of it. According to an exercise done by Niti Aayog, the cost of reimbursing the shortfall up to a specified level for 23 crops works out to over Rs 110,000 crore annually. If, income support is given logically, there is no case for continuing with MSP. Will the latter be discontinued?
Going by the initiative in Telengana [therein, farmers get both MSP and income support], MSP is unlikely to be discontinued. So, the annual burden of giving guaranteed income will be Rs 830,000 crore.
While, the above relief is for the future, farmers also expect waiver of their outstanding debt which is a manifestation of their persistent neglect and resulting low income in the past [indeed, they want the government to enact a law in this regard]. The loan waivers already given and those in the process of being sanctioned by March 2019 are estimated to cost about Rs 280,000 crore.
Additionally, the government gives subsidy on agricultural inputs viz. fertilizers, seeds, irrigation, power, credit etc. On fertilizers, this is Rs 70,000 crore [budget provision for 2018-19]. The interest subsidy @5% on total institutional credit of Rs 1100,000 crore works out to about Rs 55,000 crore. Add other input subsidies, the total will cross the Rs 200,000 crore mark.
All put-together viz. income support, MSP, agri-input subsidies and loan waiver, the total cost of giving protection to farmers would be about Rs 1310,000 crore. Under a regime of income support, continuation of MSP and agri-input subsidies is untenable. Even if, these are discontinued, the government would need to spend Rs 1000,000 crore including one-time cost Rs 280,000 crore towards loan waiver.
If, implemented from April 2019, the centre will have to spend an extra Rs 410,000 crore on income support in lieu of MSP and agri-input subsidies plus another Rs 280,000 crore for loan waiver [if, it is prompted to bear the entire liability]. That means extra burden of Rs 690,000 crore during 2019-20.
And, don’t forget the cost of subsidizing food under the National Food Security Act [NFSA] which is Rs 169,000 crore [budget provision for 2018-19]. Under it, 5 kg of cereals per person per month is made available @ Rs 3 per kg rice, Rs 2 per kg wheat & Rs 1 per kg coarse cereals to over 800 million persons. A good portion of this subsidy is going to the poor farmers.
The government needs to ponder as to why despite giving so much financial support Rs 479,000 crore [MSP and agri-input subsidy: Rs 310,000 crore + food subsidy: Rs 169,000 crore], farmers continue to suffer. What is the guarantee that their sufferings will stop after giving them another Rs 410,000 crore?
Yet, this additional spend will completely destabilize the budget and play havoc with government’s fiscal consolidation drive. In fact, by making a further big hole in the treasury, it will be unable to fund investment in infrastructure viz. irrigation, rural roads, markets etc which will affect farmers’ ability to increase production leading to further drop in their income.
Our politicians of all hues are treading a dangerous path. They need to understand as to why the farmer realizes a low price for his produce. An over-arching reason is that he is forced to sell it at the notified APMCs [agriculture produce market committees]. These APMCs are cartelized and mostly controlled by powerful/influential traders. They pay less to farmers and rake in moolah by selling at high price.
Instead of using tax payers money to compensate farmers – be it through income support or MSP or agri-input subsidies or farm loan waivers – [that will only help traders continue with their loot], the problem has to be tackled at the source.
The focus should be dismantling these cartels and invest heavily in establishing alternative platforms to enable them sell their produce. The removal of restrictions on exports, creation of national markets [albeit seamless] and unencumbered foreign direct investment [FDI] in retail are other potent policy incentives that would help them realize better price.
However, until the elections are over, it is unlikely that our politicians will pay heed to wise counsel.