Mains Paper 3: Economic Development| Agriculture| Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security.
From UPSC perspective, the following things are important:
Prelims level: Basic knowledge of the recent efforts by government to raise farmer’s income.
Mains level: The news-card analyses how the farmers in India are implicitly taxed through restrictive marketing and trade policies, in a brief manner.
- Many experts have observed that the farmers in India are implicitly taxed through restrictive marketing and trade policies. They, however, need a stable income policy.
Higher minimum support prices (MSPs) not a solution
- The attempt to woo farmers by announcing higher minimum support prices (MSPs) based on 50 per cent margin over paid out costs plus imputed value of family labour (cost A2+FL) has fallen flat as market prices of most of those commodities remain 20 to 30 per cent below MSPs.
- Procurement by government agencies has been limited, as they already have overflowing stocks that they cannot offload without incurring massive losses.
- The meagre budgetary provisions under the PM’s AASHA scheme to lift market prices have, therefore, failed to erase farmers’ gloom.
- In any case, the MSP policy cannot reach more than 20 per cent of peasantry even with augmented procurement of pulses and oilseeds, and, therefore, cannot be a solution to farmers’ distress.
Loan waiver not a viable decision either
- The loan waiver, which the Congress president is promising, will also not benefit more than 30 per cent of the peasantry, who have access to institutional credit.
- Already, the bill from loan waivers announced by some state governments is touching about Rs 1.8 trillion (lakh crore).
- The policy of zero-interest on loans too is riddled with loopholes, leading to massive diversion of funds out of agriculture.
State governments innovating new ways
- Many state governments are trying to innovate with new ways of reaching the largest number of farmers.
- Telangana’s Rythu Bandhu scheme, which gives Rs 4,000/acre to land-owning farmers for two seasons in a year, is costing the state exchequer roughly Rs 12,000 crore per annum.
- It appears to have reached more than 90 per cent farmers, and yielded political dividends.
- However, many experts have criticised it saying that it is pro-big farmers and neglects tenants.
- The KALIA (Krushak Assistance for Livelihood and Income Augmentation) scheme of Odisha attempts to respond to this criticism and accordingly promises to include not only land-owning farmers (up to 5 acres) but also tenants and agri-labourers.
- While land-owning small and marginal farmers, 30.17 lakh in number, accounting for 92 per cent of farming households in Odisha, will get Rs 5,000/family for five seasons, the tenants and agri-labourers (estimated to be 10 lakh in number) who have no land records will get one-time payment of Rs 12,500/family, and vulnerable families (another 10 lakh) will get one-time payment of Rs 10,000/family.
- With some support for life insurance and interest-free loans up to Rs 50,000, the scheme is likely to cost about Rs 10,180 crore over three years.
- There is the major challenge of identifying who is a tenant and who is an agri-labourer, as tenancy is not legally allowed in Odisha. So, no legal records exist.
- It is important to track and evaluate the performance of these two schemes (Rythu Bandhu and KALIA) as they have not only important budgetary implications but are also a pointer towards a new policy innovation.
- West Bengal and Jharkhand are also moving in this direction, and media reports suggest that Centre too is contemplating a variant of a similar scheme.
- If it does so, it would indicate a tectonic shift in policy from promising higher MSPs or loan waivers to direct income/investment support to farmers.
- This shift will be better for the country as it is more predictable and less market distorting.
Concerns raised over such schemes
- Macroeconomists and investors are worried about how much such schemes will cost.
- Will it be fiscally sustainable and what impact will it have on investments in due course.
- Is India not becoming a welfare state even before generating enough wealth?
- The experts however view that these efforts are not “doles” but atonement for not reforming agriculture sector, especially its marketing and trade policies, which remain highly distorted, restrictive and pro-consumer, often at the cost of farmers.
Indian farmers have been “implicitly taxed” through restrictive marketing and trade policies
- One of the key findings of a mega ICRIER-OECD study on agricultural policies in India (2018) is that the producer support estimate (PSE) for India was minus (-) 14 per cent of gross farm receipts, on an average for the years 2000-01 to 2016-17.
- This implies that Indian farmers have been “implicitly taxed” through restrictive marketing and trade policies that have an in-built consumer bias of controlling agri-prices.
- If one calculates the sum involved in this “implicit taxation”, it amounts to Rs 2.65 trillion (lakh crore) per annum, at 2017-18 prices, for 2000-01 to 2016-17.
- Cumulatively for 17 years, this comes to roughly Rs 45 trillion at 2017-18 prices.
- No country in the world has taxed its farmers so heavily during this period.
- This is nothing short of plundering of farmers’ incomes.
- Until India reforms its agri-marketing laws and frees agri-markets, it is time to atone through a structured and stable income policy for farmers for at least the next five years.