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ShishirMalviya
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The reforms since 1991 have largely bypassed agriculture and other segments of the economy that engage poor and rural Indians. While incomplete economic liberalisation and technological advances have led to growth in national income, all individuals have not gained equally. The disproportionate share of gains from the reforms have gone to middle-class and rich Indians. This unevenness in development calls for a superior economic growth model. Until that happens, redistributive policy interventions such as income transfers can improve equity. Income transfers are not to be confused with doles or unemployment benefits. They are unconditional income supplements to compensate for policy failures and ease the economic anxieties of the less advantaged. In the West, economists are advocating universal basic income to fight inequality and slow wage growth, allay fears that immigrants will take away jobs, and advance automation.
Besides equity, there's also an urgent need to address rural distress, which is largely a consequence of policy failures such as ineffective procurement and perverse trade and pricing policies that have in times of bumper harvests led to gluts, depressed market prices, and aggravated farmer losses. So, it is only fair that the government pays reparations to farmers in some form.
At least two States, Telangana and Odisha, are already experimenting in a limited way with income support schemes, focused on the farm sector. In Telangana, the government is providing farmers income support payment at the rate of 10,000/ha (4,000/acre). However, this model, the Rythu Bandhu, benefits the biggest landowners the most, including those who lease out their land. Tenants, sharecroppers and landless labourers, the most vulnerable, are out of its coverage. Its success depends on reliable land records.
Odisha's recently notified KALIA (Krushak Assistance for Livelihood and Income Assistance) irons out these creases. It proposes to transfer 5,000 in cash per season (10,000 per year for double-cropped land) to the State's 30 lakh marginal farmers, leaving out the two lakh large farmers. It promises cash grants of 12,500 each to the State's 10 lakh landless households. The hope is that they will use this money to rear goats or poultry and farm mushrooms or honey. Fisherfolk are covered too, and will receive the investment support for buying fishing nets and allied equipment.
Last year, the Budget had promised compensatory payments to farmers equal to the gap between depressed market prices and the minimum support prices (MSPs) announced. But MSP-based payments distort price signals to farmers on what to produce and how much in the subsequent season.
Rythu Bandhu and KALIA are superior policy interventions. Plus, they do not suffer from the moral hazard and limited reach of farm loan waivers. Waivers penalise farmers who repay loans on time and benefit only borrowers from banks.