Income support scheme better option than debt waiver

The roll-out of income support as a core centrally sponsored scheme is a better option than debt waiver, believes India Ratings and Research (Ind-Ra). There is likelihood that the union government may announce a relief package for farmers while presenting the vote on account for 2019-20 in line with the Rythu Bandhu scheme of the government of Telangana.

The agrarian distress is not new for India and the governments in the past have responded to such a situation in a variety of ways such as by: (i) increasing public spending in rural areas (ii) increasing minimum support price (MSP) (iii) enhancing agricultural credit and enhanced extension activities (iv) launching the rural employment guarantee scheme (v) giving a waiver of farm loans (vi) providing direct income support and/or a combination of the ways. In view of the upcoming general elections in April-May 2019, Ind-Ra believes the focus of both union and state budgets 2019-20 would be on measures to address farmers’ woes. In case the FY20 interim budget announces an income support of Rs 8,000 per acre per annum for marginal and small farmers, a marginal farmer and a small farmer would receive Rs 7,515 and Rs 27,942 per annum on average, respectively. The levels are significantly lower than the amount conceptualised under the universal basic income scheme for the poor proposed in the Economic Survey 2016-17. The support would cost the union government exchequer Rs 1,468 billion (0.70% of GDP). However, if it is rolled out as a core centrally sponsored scheme, the cost would be split between the union and state governments. The cost to the union government exchequer would be 0.43% of GDP, while the cost to the combined state government exchequer would be 0.27% of GDP. Either way, it is not an easy option. Besides the union government, the states whose finances will come under pressure if it is rolled out as a core centrally sponsored scheme are Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha, Telangana and Uttar Pradesh. Only Chhattisgarh and Jharkhand have some fiscal space to accommodate such expenditure.