Will the PM Kisan Scheme Impress India's Farmers?

The scheme is far from being inclusive and will likely exacerbate already unequal social and economic conditions.

The focal point of this year’s budget has been the announcement of a new centrally-sponsored scheme, the ‘Pradhan Mantri Kishan Samman Nidhi’ (PM-KISAN). This scheme assures small and marginal farm households a guaranteed annual income support of Rs 6,000.

However, this scheme is hardly the first instance of agricultural income support in the country. States like Odisha and Telangana have individual state-level farm income support schemes. The amount of Rs 6,000 is less than the farm income support provided by states such as those mentioned above.

Interpreting the rationale

The income support estimate of Rs 6,000 per farm household appears to be an arbitrary construct. It could be speculated that this income support is to bridge the poverty gap of small farmers. However, according to the Rangarajan report on poverty, for a family of five in a rural area, the poverty line is reflected by a monthly consumption expenditure of Rs 4,860.

This implies that this annual income support falls short of covering the Rangarajan poverty line as the monthly support under PM-Kisan is Rs 500.

If the target is not poverty alleviation, then is it aiming to battle rural indebtedness? A recent survey on financial inclusion conducted by the National Bank for Agriculture and Rural Development (NABARD) finds a burden of indebtedness at Rs 1,04,602 per agricultural household for 2016-17. Naturally, an annual income support of Rs 6,000 will not cover the average outstanding debt.

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Unlike other market intervention schemes in agriculture, income support may not regulate the investment behaviour of farmers. It is still not clear if the income support of Rs 6,000 forms a part of the strategy to double farmer income by 2022. Even if it does, will giving income support amount to doubling of the income?

Implementing the scheme

On many counts, the intent seems to lack much-needed spade work. The proposal appears to be hasty and shortsighted. First, though pegged on the size of the land holdings of agricultural households, it is, in a way, targeting agricultural households. Thus, firstly, it is important to properly define an ‘agricultural household’. As per the guideline issued for the scheme, a small and marginal farm household is “a family comprising of husband, wife and minor children who collectively own cultivable land up to 2 hectare as per land records of the concerned State/UT”.

The guideline also lists the exclusion criterion for ineligibility for this scheme. Contrast this definition with the definition of an agricultural household according to the last situation assessment survey of the National Sample Survey Office (NSSO) conducted in 2012-13.

This survey defines agricultural households as those which have at least one of the family members self-employed in agriculture, either in principal or in subsidiary status in the last agricultural season, and with the value of the annual agricultural produce not less than Rs 3,000. The criterion of ownership of land is absent under this definition. The two definitions are at variance. The new PM-KISAN definition will not allow us to measure the condition of the small and marginal farmers, as no previous survey which uses this definition exists.

Second, the agriculture census defines ‘marginal’ farms as those of size less than one hectare, and those within one to two hectares as ‘small’ farm holdings. These are arbitrary and discrete classifications of land size definition and may not be the best way to identify genuine needy farmers.

This leads us to question the fate of those farm land holdings at the margin, say with a farm size of 2.1 or 2.2 hectares. Even though the economic condition of such farm households may not be significantly different with those extra 0.1 or 0.2 hectare, definition-wise, such a farm household shall not qualify as a ‘small’ category.

Assumed to be better off, medium and large farm holdings are being kept out of the scheme. However, the average size of operational holding in India has been falling over the years. Such a scheme could have the potential to allure medium and large farmers to further sub-divide their land (at least on paper) so as to qualify for the scheme in the future, which may result in moral hazard.

This brings us to the next problem. Like all other centrally-sponsored schemes, state governments will be the key implementing agencies for this one too. It is well-known that land records are shabbily maintained by state authorities. As farm size is the main identifying criterion, this may come as a major stumbling block for implementation.

The Centre has advised states to take due diligence to expeditiously update land records and identify beneficiaries. This may be a herculean task. There may be many households who are eligible for the scheme but are not in a position to corroborate their claim with land title deeds in time. Or, there may be better-off households deemed eligible for the scheme. In academic parlance, a case of typical Type 1 and Type 2 errors.

The total outlay for this scheme is Rs 75,000 crore, annually. If we look at the number of small and marginal landholdings according to the last agricultural census in 2015-16 (table one), we see that it differs significantly among the states. The total amount of transfer required for the schemes is Rs 75,381 crore.

This implies that the sanctioned amount falls short by Rs 381 crore. Perhaps this shortfall will be adjusted in time. However, one may note that the allocation to states under this scheme will depend on the states’ share in the number of small and marginal land holdings.

Depending on the number of small and marginal farms in a state, each state’s share under PM-KISAN scheme will vary. Based on the provisional report of the agriculture census 2015-16, the states projected to receive at least 3% of share under the scheme are shown in figure one. Uttar Pradesh, Bihar and Maharashtra will be the top three states with 17.6%, 12.7% and 9.4%, respectively. States like Punjab and Haryana, where the average farm size is more than the national average, will receive less than 0.5% of the share under the scheme.

But such a criterion could incentivise states to frame policies to have smaller land holdings. An amount of Rs 6,000 may look pretty small for the states to be tempted today. However, future income transfer schemes with similar criterion and a bigger budgetary allocation could see the states’ average farm size shrink further. Is that desirable?

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Limiting proposition

Vulnerable agricultural wage labourers and landless farmers are conspicuous by their absence from the scheme. In fact, the number of landless farm households is higher than the number of farmers who own land. Such households are without any assets or assured source of income. Thus, the scheme is far from being inclusive. This may exacerbate already unequal social and economic conditions.

It is being argued that the income support of Rs 6,000 would be spent on meeting farm input demand and provide an assured supplemental income. However, in a capital-poor economy, schemes like PM-KISAN would not help in creating assets. Contrast this with an employment guarantee scheme like MNREGA. Not only is the scheme is demand-driven, it also helps create productive assets. This helps generate further activity in the local economy.

Implementing such an ambitious scheme may not be easy. If expanded, the scheme will lay a huge fiscal burden on the state. Future income transfer schemes should not be tailored along the same lines.

Varun Kumar Das is a PhD student at the Indira Gandhi Institute of Development Research (IGIDR), Mumbai. His fields of interest are agricultural economics, development and labour issues.