Income transfer can ease farm distress

There is an illusion across various quarters that a one-time farm loan waiver can remove all the hardships farmers have been going through over the last 15 years or so. This illusion has been occupying more space in public discourse in recent months because of competitive politics and the fast approaching general election. Despite the Centre and various States announcing loan waivers at different times, the conditions of farmers are deplorable even today. Can loan waiver be a panacea for farm distress? Or can direct income transfer, similar to the Rythu Bandhu Scheme (RBS) introduced by Telangana in 2018, rescue the farmers from the agrarian distress?

Why loan waiver is not useful

For more than 15 years, farmers have been struggling to get adequate income mainly due to increased cost of cultivation and un-remunerative prices in the market. Instead of creating a conducive atmosphere to increase farm income on a permanent basis, policymakers at different periods have been resorting to the quick-fix solution of loan waivers, which do not cover even one-third of the farmers.

Probably, the first countrywide loan waiver, of around ₹10,000 crore, was announced in 1990 when VP Singh was Prime Minister. In 2008, the Manmohan Singh-led government announced the biggest farm loan waiver of ₹52,260 crore. Between 2014 and 2018, as much as ₹1,82,802 crore was reportedly waived by seven States (Andhra Pradesh, Uttar Pradesh, Maharashtra, Kannada, Rajasthan, Punjab and Tamil Nadu). However, even after such massive loan waiver, there is no evidence to show that the livelihoods of farmers have improved.

Farm loan waiver cannot permanently cure the deep-rooted agrarian crisis. Those supporting loan waivers must understand that a large chunk of farmers still borrow from, among others, moneylenders and traders. As per the report of the All India Debt and Investment Survey (2013), the share of non-institutional debt among the cultivator was 36 per cent. The Rangarajan Committee on Financial Inclusion (2008) also observed that about 66 per cent of marginal and small farmers still rely on moneylenders for credit needs.

The Situation Assessment Survey of Farmers (2012-13), conducted across the country by the National Sample Survey Organization (NSSO), shows that only 23 per cent of the farmers had borrowed money from institutional sources. Shockingly, only 14 per cent of marginal farmers and 24 per cent of small farmers got credit from institutional sources.

According to a recent survey conducted by Nabard [All India Rural Financial Inclusion Survey in India in 2016-17], only 30.3 per cent of farmers have taken loans from institutional agencies.

From this it can be inferred that almost 70 per cent of farmers do not enjoy loan waivers. In particular, the percentage of small and marginal farmers who benefit from loan waivers will be very low as their share of borrowing from institutional sources is meagre. How can a debt waiver scheme that does not take into account these anomalies be a remedy for the deep-rooted agrarian distress? Why should taxpayers’ money be paid only to a small portion of farmers?

It is clear now that the loan waiver announced during different periods have miserably failed in alleviating farm distress. Barring the large farmers who cultivate high value commercial crops, all other farmers are in deep crisis. It is, therefore, necessary to formulate a direct income transfer (DIT) scheme that can support all farmers on a regular basis.

Telangana has successfully implemented the Rythu Bandhu Scheme, which provides ₹4,000 per acre twice a year. That is, a farmer owning one acre of land gets ₹8,000 per year directly to his bank account. This programme has been well received by farmers.

What will be the outgo if such a scheme is implemented at the national level? India’s current net cultivated area is around 140 million hectares. Following RBS, if ₹20,000 is paid per year for one hectare, it will cost roughly about ₹2.80-lakh crore per annum.

The government may have some difficulty in allocating such a huge amount in the Budget to a single scheme. But the amount required can be reduced considerably by marginally tweaking the scheme. For instance, if a ceiling of ₹40,000 is fixed per farmer, the Budget requirement can be reduced.

By fixing such as ceiling, all marginal and small farmers (these two groups account for 86 per cent of the farmers) will benefit from the scheme, while the other farmers will get the ceiling amount of ₹40,000 per annum. Similar to other developmental schemes, the governments can also reduce the amount of funds required by employing cost-sharing between the Centre and States in the ratio of, say, 70:30.

Host of benefits

The direct income transfer (DIT) scheme will provide much more benefits to the farming community than loan waivers. First, the scheme will benefit all farmers — those who have borrowed from institutional as well as non-institutional sources.

Second, as the income transfer is done before the crop season, farmers can buy and use the necessary inputs in time without adhering to the terms dictated by the moneylenders and traders. This will also help reduce the total cost of cultivation.

Third, farmers who borrow from moneylenders and traders for cultivating crops will no longer be forced to sell the produce immediately after harvesting the crops.

Fourth, unlike loan waivers, DIT frees the farmers from interactions with bankers. And, fifth, genuine, non-defaulting farmers do not get any benefit under loan waivers, but not so under DIT.

So, until a conducive market environment is created where farmers can fix prices for their produce, DIT can help address their economic woes and raise the standard of living.

The writers are Member (Official), Commission for Agricultural Costs and Prices, New Delhi, and Senior Assistant Professor, Vellore Institute of Technology, respectively. The views are personal.