Advantages of Income transfer policy

What is the issue?

Income transfer policy combined with direct cash transfer should be implemented to address farmers’ issues.

What are the possible solutions?

The most pressing problems facing the Indian farmer are the persistently low market prices.
The prices of many crops in India are much below expectations and normal trends.
Ideally, the solution lies in holistic and broad-based agri-market reforms like -

However, these reforms entail a long gestation period and hence demands for quick-fix solutions are increasing.
These quick-fix solutions lie in the form of higher minimum support prices (MSPs), loan waivers and direct income/investment support.

Can MSP and loan waiver address farm distress?

MSP - The MSP policy pertains to a limited number of farmers.
As per NSSO 2012-13, less than 10% of the country’s farmers sold their produce at MSPs.
Moreover, MSP operations mostly benefit large farmers who have marketable surplus.
These operations exclude much of country’s marginal farmers who produce little surplus.
Besides, the large inefficiencies and market distortions caused by a MSP-regime make it an unfavourable choice.
For example, wheat and rice stocks with the government (45.4 MMTs) are more than twice its buffer-stock norms (21.4MMTs), reflecting massive economic inefficiency.
Along with it, the problems of leakages and corruption in the MSP operations of procurement, stocking and distribution prevails.
Also, there was a difference in the MSP increase formula (C2 cost or A2+FL) offered by the different states.

It may be noted that C2 is about 38% higher than A2+FL and many states follow the A2+FL model.
Loan waiver - As per NABARD’s Financial Inclusion Survey (NAFIS), between July 2015-June 2016, 43.5% of all agri-households took loans.
It also reveals that a total of about 30.3% of Indian agri-households took loans from institutions.
A loan-waiver is thus likely to benefit only this 30% and the remaining 70% of Indian farmers, who do not access institutional credit, will not benefit from this scheme.

Such high rates of exclusion must be the single-most important failure of our banking system with regard to financial inclusion.
Thus, it can be seen that, through higher MSPs or loan-waivers, one cannot reach more than 20 to 30% of Indian farmers.
This limited reach, therefore, cannot redress the widespread grievances of Indian farmers.

What should be done?

The problems can be resolved by income/investment support like the Rythu Bandhu Scheme (RBS) of Telangana.
Under the scheme, the government gave Rs 4,000 per acre to every farmer.
This transfer is made twice a year, coinciding with two cropping seasons to support the input purchases of farmers. Click here to know more.
The scheme is said to have reached almost 93% of landowners and also budget-friendly to the state government compared to loan waivers.
In terms of costs, a national farm-loan waiver is likely to cost about Rs 4 to 5 trillion.
An income transfer scheme is likely to cost about Rs 2 trillion, even while increasing the coverage to include even tenant farmers in the future.
Only a cost-sharing arrangement between the Centre and states is required to bear the financial burden of the states.
Thus, an income transfer policy for farm inputs should be rolled out on national scale combining with the existing direct cash transfer in case of fertiliser and power subsidies.
The government should acknowledge this reality of farm distress and tries to resolve it on priority.

Source: The Indian Express