What to expect before Modi’s 'maha' deal for farmers

With just four months left for general elections, the Centre's package for farmers, even if cleared, will be partially implemented and left for the next govt

By DTE Staff
Published: Friday 28 December 2018

Signs of an upcoming deal for farmers by the Union government were visible even before the elections to the five state assemblies in November-December 2018. The ruling Bharatiya Janata Party (BJP) lost all of them ostensibly due to the agrarian crisis.

Before these state elections, the Prime Minister’s Office (PMO) had already initiated an “attractive” and “different” way to approach the agrarian crisis.

As per speculation in the media, Prime Minister Narendra Modi is likely to declare a package of initiatives (many say it is similar to what he did after demonetisation in December 2016—a number of steps/concessions weaved into a package).

This includes: declaration of monetary support to farmers based on landholding, in the line with similar policies in Telengana and Jharkhand; a potential loan waiver; protection scheme for farmers from extreme weather events in the form of cheaper agriculture insurance, including protection from market price fluctuation.

On December 28, the PMO has to finalise a deal, and in the next few days (speculated date of declaration December 31) announce it to the public.

Before we get into the details, a caveat: the Union government’s financial health is not that encouraging, and implementing any big decision that involves billions of rupees will be problematic. Fiscal deficit is now 114 per cent in the first eight months of this fiscal year. Further, any deal will take time before it’s cleared for implementation, for example, a loan waiver decision takes months to unfold.

Loan waiver

According to preliminary discussions among various ministries, including the Union agriculture ministry that culminated in the December 27 meeting with the Prime Minister, a general loan waiver is very much in the offing.

In the last three years, eight states—Madhya Pradesh, Maharashtra, Uttar Pradesh, Rajasthan, Telengana, Karnataka, Chhattisgarh and Punjab—have declared loan waivers amounting to Rs 1,56,800 crore. Of these eight states, only two are ruled by the BJP.

On December 11, in a written reply to Bhavana Pundlikrao Gawali Patil—a Lok Sabha member who represents Yavatmal-Washim—Parshottam Rupala, minister of state in the Ministry of Agriculture and Farmers Welfare, said that there was no plan to waive off the farmers’ loan. The written reply reads that “the Union government, at present, is not considering any loan waiver scheme for farmers”.

According to the 70th round survey of the National Sample Survey Office (NSSO), the average loan debt of a farmer in the country is Rs 47,000. A small and marginal farmer’s loan varies from Rs 31,100 to Rs 54,800.

Around 52 per cent of agriculture households are indebted in the country. According to various estimates by experts, if government goes for a universal loan waiver now it might cost close to Rs 1, 00,000 crore.

Direct investment support to farmers

This is the second option being talked about by the government and a decision on this is more likely. Under this plan, a farmer will get flat financial support based on the landholding.

Currently Telengana and Jharkhand has rolled out a similar scheme—Telengana gives Rs 4,000/per acre and Jharkhand has offered Rs 5,000/acre. Odisha has recently declared a similar scheme with higher monetary support.

However, the important issue that emerges here is how the scheme will be implemented when the next cropping session is due in June 2019. Further, the right amount of support has to be worked out.

Under such a scheme, the level of exclusion is very less as it covers all based on the landholding, and money is transferred to the beneficiary’s account directly.

Second challenge is monetary—according to various estimates, to cover all farmers in the country with a support price of Rs 4,000/acre, it will cost the exchequer above Rs 200,000 crore.

Universal Basic Income 

This idea has been making rounds of the capital’s power corridors, and currently being talked about as something “new” and “politically lucrative”.

The NITI Aayog has already floated the idea, highlighting its pros and cons. In the last four years, various government documents, including budget papers, have found strong reasoning for this idea.

The idea is to consolidate close to 700 centrally-sponsored schemes that cost up to 6 per cent of the GDP, by budget allocation, and crunch it into a per capita income support.

An estimate shows that government can easily afford a universal basic income support ranging from Rs 7,000 to Rs 12,000/capita/year. But, as sources point out, government might just declare a Rs 5,000/capita/year scheme.

Increasing minimum support price (MSP)

Raising MSP is the staple demand by farmers, but in such a way that it at least covers the cost. Writing in Down To Earth, agriculture policy analyst Devinder Sharma, says: “Farmers are in reality the victims of a flawed economic design. A recent report by global analytical company, CRISIL, points to the denial of the rightful income to farmers as the major reason behind the agrarian crisis sweeping through the country.”

This CRISIL report says: “While the average annual growth in the MSP [for crops] was 19.3 per cent between 2009 and 2013, it was only 3.6 per cent between 2014 and 2017.”

The challenge with MSP is that hardly 10 per cent of farmers reap its benefits. Given the fact that farmers, both small and big, protest against the dip in market rate for their produces, mere MSP increase might not address the problem. Government has to intervene in the market in such a way that it protects the investment made by farmers at least. In this context, a scheme like direct investment support could work better.

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