Tax changes: Interim Finance Minister Piyush Goyal on February 1 announced tax sops for the middle class. One of the biggest announcement was the doubling of income tax exemption limit to Rs 5 lakh. (Image: PTI)
Union Budget 2019 announced a direct annual income support of Rs 6,000 per annum to farmers with land holding below two hectares under the Pradhan Mantri Kisan Samman Nidhi (PM Kisan). The welfare package is likely to benefit around 12 crore farmers and would cost the exchequer Rs 75,000 crore. We still don’t have clarity if the cost would be split between the Centre and state governments.
All governments in the past have announced different welfare and support schemes to farmers. Examples include increasing minimum support price (MSP), enhancing agricultural credit, increasing public spending in rural areas and announcing a farm loan waiver.
Of the various schemes, a farm loan waiver is the worst way to address the agrarian distress. The data indicates that delinquencies in the period after the debt waiver increases significantly. In the past, we have seen an increase in the number of new borrowers after the waiver, indicating a moral hazard associated with debt waivers.
We welcome the move as unlike loan waivers, direct income support doesn’t adversely impact the banking system already saddled with huge non-performing assets. At the same time, PM Kisan will boost rural consumption and hence is a better alternative. That said, roll out of the scheme is not easy as it will depend on proper land records.
The announced PM Kisan is in line with Rythu Bandhu scheme of Telangana, the first direct farmer welfare support scheme in India, where cash is paid directly.
Rythu Bandhu scheme (also Farmers’ Investment Support Scheme) is a welfare programme to support farmer’s investment for two crops a year by the Telangana government. The latter provides 58.33 lakh farmers Rs 4,000 per acre per season to support farm investment, twice a year, for the rabi and kharif seasons.
Overall, we see PM Kisan as a relatively better populist measure, which may yield electoral gains.
But as we know that the agricultural sector employs more than 50 percent of the total workforce in India, while its contribution to GDP is declining and stands around 17-18 percent of GDP, any measures aimed at enhancing rural employment is the best way to address agrarian distress.
For more research articles, visit our Moneycontrol Research page