7 PM | Direct Cash Transfer to Farmers- An Analysis | 1st February, 2019

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Context

The Union government announced a cash transfer scheme, the Pradhan Mantri Kisan Samman Nidhi, to provide income support of Rs 6,000 per year to small and marginal farmers in the Interim Budget 2019.

What is direct cash transfer for farmers?

Direct cash transfer is a poverty reduction measure in which government subsidies and other benefits are given directly to the farmers in cash rather than in the form of subsidies. The measure seeks to provide a direct income support to the farmers.

Background: Policy Instruments to support farmers.

The Indian Government’s dominant policy instrument for supporting Indian farmers has been subsidising key farm inputs (such as fertilisers, power for irrigation, canal waters, agri-credit and crop insurance) and minimum support prices (MSP) for 23 major crops.

Different Schemes for Direct Income Support to Farmers

1. Pradhan Mantri Kisan Samman Nidhi, All India:

• The scheme will provide assured income support to small and marginal farmers.
• Under the scheme, farmers with small landholdings, of up to two hectares, will be provided direct income support of Rs 6,000 per year.

2. Ryatu Bandhu Pathakam, Telangana

• Under the scheme, Rs 4,000 per acre per season is given to every farmer.
• The transfer is made twice a year, which coincides with the two cropping seasons- Rabi and Kharif.
• The objective is to help the farmer meet a major part of his expenses on seed, fertiliser, pesticide, and field preparation.
• The scheme covers 1.42 crore acres in the 31 districts of the state, and every farmer owning land is eligible.

3. Krushak Assistance for Livelihood and Income Augmentation (Kalia) Scheme, Odisha

• Under the scheme, all farmers will be provided Rs 10,000 per family as assistance for cultivation.
• Each family will get Rs 5,000 separately in the Kharif (on Akshaya Tritiya) and Rabi seasons (on Nuakhai day), for six cropping seasons between 2018-19 and 2021-22.
• Further, crop loans up to Rs. 50,000 would be provided interest-free to the beneficiaries.
• Also, around 10 lakh landless families will be supported with Rs. 12,500 to take up agricultural activities like small goat-rearing units, mini layer units, duck units, fishery kits for fishermen and women, mushroom cultivation and bee keeping.

Rationale behind Direct income Support/ Benefits:

1. Discretion to Beneficiary: The major advantage of direct income support is that beneficiaries would have complete freedom to spend aid money on what is best for them, rather than having to accept what the implementing organisation thinks is best for them.
2. More transparent:A direct transfer of cash to support farmers would circumvent multiple layers of bureaucracy, the scope for leakages prevalent in other policy instruments such as subsidies.
3. Optimising inputs: direct income transfer will enable farmers to use the market to decide their production and help in optimising the use of inputs. Direct cash transfer will also not affect crop choices- For example: growing sugarcane in water-scarce Maharashtra
4. Does not affect banking ecosystem: Direct cash transfers would not impact the banking ecosystem for example: defaults by farmers and banks by advancing lower volumes of fresh credit
5. Help negate money lender issue to an extent:With direct income transfer 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 and also stop exploitation of farmers by money lenders
6. Raising Living Standards of farmer’s: According to proponents of direct income support to farmers advocate that it would help raise their living standards, reduce poverty and mitigate farm distress.

Issues and Challenges

1. Critics argue that providing direct cash may lead to wasteful consumption (such as on alcohol).
2. Cash transfers do not address the structural issues in Indian agriculture which have led to agrarian crisis. It does not resolves nay structural issue plaguing Indian agriculture; such as faulty and ad hoc export-import policy, lack of infrastructure, issues with agricultural market, drop in agricultural prices etc.
3. Except for the Kalia scheme, most other direct cash transfer schemes are regressive with amount of transfer proportional to the land owned. Further, schemes like Rayatu bandhu completely excludes the landless labourers who form a major portion of the agricultural workforce in India
4. Identification of beneficiaries is a major challenge. In the absence of proper tenancy records, direct cash transfer will also benefit the absentee landlords.
5. Loan waivers have already put a strain on state exchequers. The income transfer scheme will further strain the fiscal capacity of states.
6. Critics argue that providing direct cash transfers to farmers would make the farmer more vulnerable to both market as well as non-market induced risksas investments in basic infrastructure and other measures necessary to support agriculture would get undermined.
7. Another major criticism of cash transfers is that it does not provide any guarantee of protection against unforeseen events, whether natural or policy induced.

Way forward

Income transfers are not one-stop-solution to farm distress and measures should be taken to address the structural issue plaguing Indian agriculture.

1. It is important to make farming more profitable so that it can attract farmers to invest more in farming, and thus generate the higher levels of income. This in turn would help in raising agricultural wage rates and also demand for non-agricultural products.
2. It is important to take steps to protect agricultural production from the effects of climate change and ensure sustainable agriculture.
3. It is required to make adequate investments catering to the changing requirements of the modern agriculture, especially agri research and development.
4. It is necessary that the newer variety of seeds and HYV seeds are affordable and accessible for the farmers.
5. Farmers need to have assured access to and control over rightful basic resources like land, water, bio-resources, credit and insurance, technology and knowledge management, and markets.
6. Government must incentivise farmers to diversify their incomes through allied activities (livestock, fisheries, and agro-forestry) to enhance livelihood opportunities.
7. Measures should be taken to address price volatility of agricultural produce. It is important to effectively implement ‘price deficiency payment scheme’
8. Export-import policies must be made pro-farmer so that they are able to get the full benefits of higher prices abroad. Farmers should be protected from any sudden collapse in world prices by an appropriate adjustment in duties.
9. There should be greater adoption of technology in agriculture. Measures should be taken to reap the potential of AI, block chain technology, GIS etc.
10. It is important to implement income transfers schemes effectively by assuring Centre-state coordination and transparency in the process.

Source: https://www.livemint.com/opinion/columns/opinion-why-cash-transfers-will-not-solve-the-crisis-in-agriculture-1548956208017.html