AGRICULTURE IN FY21 BUDGET: PAYING FARMERS KEEPS THEM POOR

Indian farmer working in filed ( Photo by Kayum)

The finance minister, in her FY21 budget speech, announced a 16-point agenda to kickstart growth in agriculture and farmers’ income. While the agenda makes sense, following the money presents a disconcerting prospect. Less than 10% of the Rs 2.2 lakh crore budgeted for agriculture will support capital formation or R&D. Economies can’t grow without investment and innovation. This budget provides money for neither.

Rising subsidies are crowding out resources for investment and innovation. The government’s renewal of the PM-Kisan scheme for another year, with an allocation of Rs 75,000 crore was the most consequential policy decision for the agriculture sector in the budget. This amount is 2.5% of the entire federal budget, and one-third of the agricultural budget. In our country subsidies, once started, are seldom rolled back. This scheme will now become an integral part of India’s agricultural policy.

PM-Kisan promises to provide income support of Rs 6,000 per year to all land-owning families in three instalments of Rs 2000 each. The amount is the same for all landholding families, irrespective of their holding sizes. Tenants, and those engaged in allied activities, like animal husbandry, fisheries, etc, don’t qualify for the benefits if they don’t own farmland.

Since its launch in December 2018, 8.88 crore landowners have received more than Rs 50,000 crore in cash transfers under this scheme. The 2015-16 Agricultural Census counted 14.65 crore farm holdings in India. If the Census estimates were correct, 60.6% of all landowners in India have received at least one instalment of PM-Kisan payments by February 10, 2020. An average beneficiary has received Rs 5,700 of the Rs 8,000 (or 2.85 of the four instalments) due to them. However, there are significant inter-state variations. West Bengal is not implementing the scheme while in Andaman & Nicobar Islands, Assam, Manipur, and Punjab, the number of beneficiaries is larger than the total number of landholdings estimated by the Census. In Punjab, the number of PM-Kisan beneficiaries is twice as large.

Is `6,000 a year sufficient for farmers to make a real impact on agriculture, or their lives? Depends. For large farmers in Punjab, it is a relatively small amount. In contrast, in Bihar, where two-thirds of the 1.66 crore farmers own less than 0.2 ha land, Rs 6,000 can fully pay for the inputs used to grow paddy or wheat. These 1.1 crore smallholders of Bihar earn less than the PM-Kisan entitlement from a crop of rice or wheat. So, the PM-Kisan entitlement is not small when compared to the average earnings of India’s 8.1 crore smallholders (those with less than 0.2 ha land) from one season of growing a cereal or a pulse crop.

Can we expect any direct impact of the cash transfers on India’s agriculture? I am not sure. PM-Kisan is not an agricultural subsidy. It is an income support, equal in value to the annual NFSA entitlement of a family of five, but only for landowners. It will definitely lead to an increase in the welfare of these families, and is progressive in its design. A farmer with 0.25 ha land gets the same amount of cash as another one with 25 ha of land. So, the welfare impact will be much larger for poor, sub-marginal, and near-landless farmers than for larger landowners. However, I do not expect PM-Kisan to lead to agricultural intensification. Agriculture in India is a high-risk, low-returns activity. Farmers would rather spend the money they get on other activities with better, more assured returns.

Lump-sum transfers are more efficient than distortionary price subsidies, but the problem is that PM-Kisan has not replaced any existing subsidy programme. It is yet another freebie and will further crowd out investments and R&D in agriculture. This already evident in the Budget. If the goal of PM-Kisan is to reduce rural distress, it seems unfair that the fund allocation for it is 22% higher than MGNREGS (Rs 75,000 and Rs 61,000 billion, respectively). There are more farm labourers than farmers in India, and the former are poorer. Rural distress is affecting them just as much, if not more.

By Avinash Kishore a Research Fellow with IFPRI's South Asia Regional office in New Delhi. This post first appeared in the Financial Express. Views expressed by the author are personal.