Income transfer can ease farm distress

Income transfer can ease farm distress

Issue:

• For more than 15 years the farmers have been struggling to get adequate income mainly due to increased cost of cultivation and un-remunerative prices in the market

Problems with Loan Waiver (LW) Scheme:

• Loan Waiver Scheme cover less than one-third of total farmers which could be inferred from following studies

1. Rangarajan Committee on Financial Inclusion (2008): observed about 66% of small and marginal farmers rely on moneylenders for credit need

2.Situation Assessment Survey of Farmers (2013-13)– conducted across country by NSSO:  observed only 23% of farmers borrowed money from institutional sources

3. NABARD-All India Rural Financial Inclusion Survey in India (2016-17): observed only 30.3 per cent of                 farmers have taken loans from institutional agencies

4. All India Debt and Investment Survey (2013): observed share of non-institutional debt accounts for 36% cultivators

• Between 2014-18 about 182802 crore loan was waived by seven states but there is no evidence to show Loan Waiver scheme improved livelihoods of farmers
• Erode credit discipline and credit culture
• Cost tax payers. For Eg. about 52260 crores was spent on the loan waiver of 2008 (International Council for Research on International Economic Relations)
• Entail a moral hazard — even those who can afford to pay may not pay in the expectation of a waiver

Benefits of Direct Income Transfer(DIT) Scheme:

• Benefit all farmers: those who have borrowed from institutional as well as non-institutional sources
• Timely Farm Inputs application: income transfer is done before cropping season, farmers can avail essential inputs without dependence on moneylenders and traders
• Reduce cost of cultivation: which is mainly high due to high cost of loans by moneylenders and traders
• Reduce Distress sale: farmers who borrowed from moneylenders and traders, no longer forced to immediate sell after harvest to pay back
• DIT frees the farmers from interactions with bankers
• In Loan Waiver scheme non-defaulting farmers do not get any benefit as no such issue in DIT-S

Issues in implementation of DIT-Scheme:

• Telangana successful Rythu Bandhu Scheme provides 8000/acre a year
• Based on this model, the financial cost of DIT scheme would be :

India’s current net cultivated area: around 140mn hectares

Following Rythu Bandhu scheme if government pays say: 20000/acre a year

Financial cost would be: about 2.80 lakh crore per year

It would be huge amount for single budgetary scheme

Probable Solution to DIT :

• Such huge financial cost can be reduced significantly by marginally tweaking the scheme:

1. By fixing ceiling limit of 40000/farmer: all marginal and small farmers (86% of total farmers) would benefits from scheme and other farmers gets ceiling amount
2. By employing center-state cost sharing mechanism of say 70:30 as in other developmental scheme