Cash Transfers to Farmers Must Be Unconditional To Make a Meaningful Impact: SBI

Moneylife Digital Team 22 January 2019

Economy & Nation

There have been media reports saying that government is planning to provide direct cash support to the farmers in lieu of various farm level subsidies and support. The annual cost of such a scheme is about Rs1.2 lakh crore per annum. However, subsuming it under cash transfer will not alleviate the rural distress on an immediate basis, says a research note.

In the report, State Bank of India (SBI) says, "The cash transfer to begin with may be kept outside the purview of income support scheme, since one of the major drawbacks of any income support scheme is identification of proper beneficiary. Hence, it is best to initiate unconditional cash transfer scheme as it will be more equitable on a per farmer basis with a meaningful impact and once the problems are ironed out in terms of proper tenancy laws, then make it conditional."

In Budget 2019-20, the government had estimated agriculture subsidy plus support at Rs98,100 crore, including crop insurance at Rs13,000 crore, interest subsidy at Rs15,000 crore and fertiliser subsidy of Rs70,100 crore.

This move comes on the back of suggestions in public domain by noted agricultural economists as well as Niti Aayog that perhaps Rythu Bandhu Scheme that is fiscally prohibitive to launch on a pan-India level should be netted against fertiliser subsidies, interest plus and insurance support. Instead of this, farmers should be provided the benefit as direct cash in their account.

"We however believe this argument has flaws, though a cash transfer scheme is always a better option than an universal basic income (UBI) scheme. Many countries have found that UBI does not address the structural problems and is at best a solution in interregnum," SBI says.

Against this background, the report estimates an amount that farmers are getting presently and how much would they benefit on a net basis from such cash transfer scheme, if it was to be subsumed within cash transfer.

SBI says, "We have endeavoured to calculate the exact amount that farmers are getting presently by subsuming these subsidies or schemes and how much would the farmers benefit on a net basis from this income support scheme. As per agriculture Census 2015-16 there are about 14.60 crore farmers, based on operational holdings, in the country. Of these 14.60 crore farmers, not all farmers avail interest subsidy and crop insurance."

As per Reserve Bank of India (RBI)’s report on trend and progress of banking in India 2017-18, the total number of operative kisan credit card (KCC) accounts were 69.2 million as of March 2018. "If we assume that some farmers have more than one KCC, even then almost 45% of total farmers may have received interest subvention. Similarly, as per Pradhan Mantri Fasal Bima Yojana (PMFBY) portal, the total number of farmers insured in both Rabi and Kharif season in FY2017 are 51.3 million. Again, there may be some duplication, as same farmers may get covered under both the sowing season, so our estimate suggests at most 35% of total farmers are receiving crop insurance. Regarding urea and nutrient-based subsidy, we can safely assume that around 90% of all farmers would avail this as still there are some farmers who could not afford to purchase fertilizer even at the subsidized rate," the SBI report says.

SBI's calculation suggests that if a farmer is availing one or all the three modes of subsidy or supports from the government, then she will receive minimum of Rs5,335 to maximum Rs10,162 per annum as cash support. The government will need to provide cash support in the range of Rs10,000-12,000 per annum to make it completely cash neutral, it added.

Comments