With the formal launch of arguably the world’s largest farm sector scheme, the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) by PM Narendra Modi on February 24, a farmer-centric template has been laid down for the upcoming Lok Sabha election campaign. The scheme is aimed at providing direct assured income support amounting to Rs 6,000 per annum to small and marginal farmer families holding up to two hectares of cultivable land. The opposition parties have termed it a “bribe for votes” scheme.
Those familiar with the Indian agricultural policy scenario know the idea behind this scheme is not new. Telangana introduced a similar kind of scheme in May 2018 called Rythu Bandhu. Under this, every year farmers receive in their bank account Rs 8,000 per acre of land owned by them. This January, Odisha launched the Krushak Assistance for Livelihood and Income Augmentation (KALIA). In this, families of small and marginal farmers and landless agricultural labourers receive income support ranging from Rs 10,000 to Rs 25,000 in their bank account. The main purpose of income transfer under these three schemes is to enable farmers to purchase agricultural inputs such as seeds, equipment and labour (all three schemes) and to venture into allied agricultural activities such as goat rearing, mushroom cultivation and bee-keeping (KALIA).
Their launch raises two important questions: What is the economic rationale for such schemes? And what is the best way to implement them?
It is well known that in India a major part of the government expenditure on welfare and subsidy schemes fail to reach the beneficiaries due to improper targeting, lack of accountability and weak administrative capacity. According to an estimate by the erstwhile Planning Commission, to transfer Rs 1 worth of food the government has to spend Rs 3.65, indicating high leakage. So, to spend government money on welfare schemes efficiently two mechanisms have been suggested by development policy experts all over the world. They are Direct Cash Transfers (DCT) and Universal Basic Income (UBI).
The DCT mechanism involves the transfer of money directly to the beneficiaries of government welfare schemes, instead of offering them goods and services at subsidised rates. The recipients can decide what they want to do with the money. A farmer family receiving money under PM-KISAN can use it to purchase seeds, fertilisers, etc. or use it to meet the immediate needs of the family. UBI is a social security system in which all citizens of a country are entitled to a minimum income from the government without any conditions attached to its use.
The spirit behind unconditional money transfer is that the recipient knows how to make the best use of it. But nothing stops a government from imposing conditions. For instance, under a successful cash transfer programme called Bolsa Familia (Family Allowance) implemented in Brazil, the government transfers cash to poor families to help them meet basic needs only if the family agrees to send their children to school and take them to a health care centre for regular check-ups and vaccination.
The direct income schemes for farmers have the following key benefits. First, they guarantee a minimum income for the farmers. Second, cash in the hands of farmers would expand their choices which, in turn, could enhance rural economic activity. Third, cash would reduce the dependence of farmers on inefficient and insensitive government machinery for accessing agricultural inputs and on usurious money lenders for meeting their credit requirements.
But there are three major concerns. In a system where agri inputs are already supplied at subsidised rates to farmers, cash transfers result in duplication of government expenditure. There is a risk that cash transfers would induce some sections of farmers to reduce their farming activity. The recipients of cash could spend it on non-agricultural purposes.
To avoid duplication, public provision of agri inputs should be replaced depending on the extent of cash support received by farmers. The possibilities of misspending could be reduced through a proper programme design. In this regard, Brazil’s successful experience with the Bolsa Familia programme offers three ideas. First, money could be transferred to women in the family, which is more likely to improve household welfare. Second, in the case of misspending, the beneficiaries can be counselled through institutions at the local government level. The reasons for misuse should be identified. This is needed as the reasons could be legitimate like crop failures, employment loss, illness in the family and indebtedness. Third, some conditions could be imposed to get the cash. For example, the beneficiary farmers could be asked to bring their livestock for regular health check-up or submit original receipts of purchase of agri inputs.
But enforcing the conditions would be difficult given our population and also promote corruption and patronage. The only solution then is to legalise misspending. Finally, as a long-term measure, income transfers could be paid out through a magnetic smart-card coded with the entitlement of the beneficiary. The entitlement could include a supplemental income component to help farmers meet basic needs and an agricultural input sourcing component. In this case, transactions can take place through point-of-sale (POS) devices (for agricultural inputs) and ATMs not connected to bank systems (for cash component), with biometric authentication for the identity of the beneficiaries.
Sthanu R Nair
Associate Professor of Economics, IIM Kozhikode
Email: srn@iimk.ac.in