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Last Updated : Jun 12, 2019 02:16 PM IST | Source: Moneycontrol.com

Budget 2019 | Why problems in the agrarian economy need long term solutions

Making PM-KISAN universal will solve the identification problem to an extent and make its implementation easier.

Moneycontrol Contributor
Representative Image
Representative Image

Ishan Anand

The new government at the centre has taken office amidst an imminent economic slowdown. GDP growth for 2018-19 slipped to 6.8 percent – the lowest in the last five years. The real or inflation-adjusted agricultural growth stood at minus 0.1 percent for January–March 2019. Deficient pre-monsoon rains have put more than 40 percent area of the country under drought alert. Providing relief to the peasantry from continuing agrarian distress is going to be a major challenge for the new government.

The first Union budget is scheduled to be presented on July 5. Meanwhile, the Union cabinet took two decisions for the agriculture sector in its first meeting – an extension of PM-KISAN to include all farmers and a pension scheme for small and marginal farmers.


In the last few years, major farmer agitations were held across the country on the issue of farm loan waivers and output price support. State after state announced farm loan waivers. The central government also announced a hike in MSP. These steps, while providing some palliative relief to a section of the peasantry, cannot provide a comprehensive solution to the crisis.

Loan waiver is a one-time measure designed to waive off institutional credit. It is prone to errors in identification of farmers and problems in implementation result in absurdly small amounts being waived. But more importantly, it completely ignores informal lending. National Sample Survey data reveal that the rise in indebtedness over the last few decades is driven by indebtedness from non-institutional sources. In 1992, the single largest source of debt for rural households was commercial banks. By 2012, the latest year for which data is available, professional moneylenders had become the single largest source of rural debt. Non-institutional indebtedness comes with exorbitant rates of interest along with harsh terms of loans but remains untouched by loan waivers. The impact of the rise in MSP is likely to be limited to crops such as wheat, paddy and cotton, that too in a few states where MSP is backed by procurement.

Understanding the limitations of MSP hike and loan waivers and with the impending Lok Sabha elections, the previous government initiated a transfer of Rs 6,000 per annum for marginal and small farmers. One obvious limitation of the previous version of PM-KISAN was the identification of marginal and small farmers, given the outdated land records. Making PM-KISAN universal will solve the identification problem to an extent and make its implementation easier. However, several other issues remain.

The critics are not wrong in arguing the amount of the transfer is too small to have any meaningful impact on the lives of cultivators. Rs 6,000 per year for a farmer household of five translates to Rs 3.30 per person per day. The cost of cultivation per hectare for wheat in the rabi season of 2016-17 was about Rs 43,000 in Bihar, Rs 46,000 in Madhya Pradesh and Rs 70,000 in Haryana. Farmers in most parts of the country sow different crops in different seasons and the cost of cultivation is much higher for crops such as paddy, sugarcane and cotton.

Moreover, farmers have to face rising levels of cost of cultivation, driven by a hike in the price of fertilisers, diesel, machinery, and water and electricity tariffs. Other than the amount being low, it is also not indexed to inflation, which is likely to erode the purchasing power and make it even smaller in real terms in the future. Despite these issues, the PM-KISAN will bring some temporary relief to the peasantry unless the resources for it are generated by redirecting the existing subsidies to farmers.

There has been a longstanding opinion among a section of economists to replace the existing subsidies on food, fertilisers and even the MSP by direct cash transfers. In all likelihood, replacing existing provisions by a cash transfer of such a low magnitude will hurt farmers and make them more vulnerable to the vagaries of weather and volatilities of markets.

The pension scheme for marginal and small farmers should also be expanded to include all farmers. This scheme is meant to provide pension benefits to farmers in the future. However, there has been a neglect of the current older generation for whom the central government provides a monthly pension of a paltry Rs 200.

Loan waivers, MSP hike, PM-KISAN and the pension scheme will provide some relief to the farmers, but none of it addresses the root cause of the agrarian distress. After years of neglect of peasantry, piece-meal programmes will only go so far. For the transformation of the distress-prone agrarian economy, the new government needs to set the country on the path of sustained long-term investment in agriculture, infrastructure and the social sector. Making agriculture remunerative and creating gainful, dignified and stable employment opportunities outside agriculture is going to be an important challenge. Will the new Modi government take concrete and decisive steps towards transforming agriculture and doubling farmers’ income? We will find out on July 5 when the finance minister presents the union budget.

(Ishan Anand teaches economics at Ambedkar University Delhi)
First Published on Jun 12, 2019 02:16 pm