Direct income Support and Farmers Income Security

One significant shift in agriculture policy discourse in the country is a shift towards direct income support measures. Several states have already announced their own versions of the scheme Telangana (Rytu bandhu), Odisha (Kalia) and Andhra Pradesh (Annadata Sukhibava). The latest to join the race is the Central government with the announcement of “Pradhan Mantri KIsan SAmman Nidhi (PM-KISAN)”.

While the basic principle of all these schemes is to provide direct income support to farmers, each one of them vary in design, scope and there by impacts.

Rytu Bandhu (Telangana): Telangana governments calls it as Investment Support Agriculture and Horticulture crops by way of grant of Rs. 4,000/- per acre per farmer each season for purchase of inputs like Seeds, Fertilizers, Pesticides, Labour and other investments in the field operations of Farmer’s choice for the crop season. Telangana govt has allocated Rs. 12,000 crore for the scheme.

Some features and issues

1.      It is disbursed in two installments.

2.      Only land owners are considered as beneficiaries

3.      No cap on the maximum land holding hence no cap on amount paid.

KALIA (Odisha): Krushak Assistance for Livelihood and Income Augmentation was announced by the Odisha government with a budget allocation of Rs. 10,000 cr. The scheme has five different components.

 1.      Support for Cultivation: 30 lakh small and marginal farmers will be provided Rs 10,000 per family as assistance for cultivation. Each family will get Rs 5,000 separately in the kharif and rabi seasons, for five cropping seasons between 2018-19 and 2021-22

2.      Support for Livelihoods: 5 lakh landless households, and specifically SC and ST families will be supported with a unit cost of Rs 12,500 for activities like goat rearing, mushroom cultivation, beekeeping, poultry farming and fishery.

3.      Financial Assistance: up to Rs. 10.00 lakhs to vulnerable agriculture households and land less labour

4.      Life Insurance cover: of Rs. 2.00 lakhs and additional personal accident cover of Rs. 2.00 lakhs to 57 lakh households of cultivators and landless agricultural labor.

5.      Interest free crop loans: to all farmers upto Rs. 50,000

Annadatha Sukhibava (Andhra Pradesh): on the lines of Telangana TDP government in AP proposing to pay Rs. 10,000 per year (Rs. 5000 per season) per acre from next financial year. This year farmers may be payed Rs. 2500/acre. About 96 lakh farmers are expected to benefit from the scheme. The state government is considering to distribute this amount equally between land owner and the tenant farmers. The details of the scheme are awaited.

PM Kisan (Central Government):  Under this programme, vulnerable landholding farmer families, having cultivable land up to 2 hectares, will be provided direct income support at the rate of `6,000 per year.

1.      This income support will be transferred directly into the bank accounts of beneficiary farmers, in three equal instalments of ` 2,000 each.

2.      Around 12 crore small and marginal farmer families are expected to benefit from this.

3.      The programme would be made effective from 1 st December 2018 and the first instalment for the period up to 31st March 2019 would be paid during this year itself.

4.      This programme will entail an annual expenditure of ` 75,000 crore.

The limitations of these initiatives

While shift towards Direct Income Support measures is in itself an innovation, not enough care has been taken in designing these measures and institutional mechanism for determining the quantum of support, mechanism to identify and deliver to targeted community and plans to long term sustainability is missing. For example

·        Income Support vs Investment Support: Direct Income Support measures can to cover the gap in income which the families fall below a minimum income level needed for a dignified living, while Direct Income Support measures for investment support a livelihood activity is when such activity becomes unremunerative and the gap is supported.   While the Telangana and AP initiatives fall in investment support category, the Odisha and Central govt initiatives fall under the livelihood support.

·        Determining the quantum of support: In either case, there seems to be no data or rational number crunching to arrive at the magic figure of the support. Like why Rs. 6000/- per family per year or why Rs. 4000 per acre per year. There should be an institutional mechanism to make an assessment of the quantum of support and link it to inflation to have annual upgradation like the dearness allowance for employees. In case of Telangana as it took per acre approach, small farmers who have less than an acre also got very little amount in proportion to their land. Rather it should be a fixed amount below a 1 ha and above that it can be proportional to the land size. There is also need to fix a maximum ceiling else land accumulation would be encouraged.

·        Identifying the target community: The main objective of the direct income support is to support the short fall in income. In that case, it should focus on cultivators irrespective of their land ownership status. Telangana state has completely gone wrong on this front while AP govt said they will ensure 50% sharing (why 50% share to land owner is not clear). The Odisha govt said they will target the cultivators and yet to see how they do it. In case of PM Kisan it also seems to be based on land ownership. There is a requirement for developing approaches for better targeting.

Why this shift is needed?

NSSO 70th Round shows the monthly income (from all sources including labor, livestock, farming etc.) of farmers who own less than one hectare of land and who make up about 81.83% of the total farming population, is less than their monthly expenditure.

§ The economic crisis in agriculture is caused by

·        Increasing costs of agriculture: The costs of cultivations are increasing at a significant rate. More dependency on external input, deregulation of input prices, general increase in cost of wage labor and land prices led to increasing costs of cultivation many folds.

·        Increasing risk in farming:  due to climate, and ecological unsustainability of current agriculture

·        Decreasing government support: deregulation of inputs, shift towards high ticket subsidies, subsidies being imbedded in inputs and inaccessibility of support systems like institutional credit for tenant farmers etc have led to increased cost burden on the farmers.

·        Un-remunerative prices and small farmers being disadvantaged in the market. Non-remunerative prices, without sufficient margins above the cost of cultivation, have been a major reason for farmers not earning sufficient income. Many improvements have been made in the CACP and the system of Minimum Support Prices (MSP), however many issues remain with determining and delivering MSP. There is also a limitation on increasing prices of agricultural commodities, particularly on food items, considering the needs of the consumers and industry.

·        Increasing costs of living: due to general inflation, with drawl of public services in the area of primary health and primary education have led to increase in costs of living

Now each individual farmer is left to balance between all these factors and is suffering with negative income. But it should be the government’s responsibility at a policy level to balance these factors of costs, risks, subsidies, prices and costs of living – so that a minimum positive income is assured.

Therefore, there is a need to look at a farmer Income Security as a Policy framework rather than depending solely only on pricing policy for farm produce or direct income support or loan waivers in order to improve the quality of life of farmers. The Policy should focus on bringing economic sustainability in farming, ensuring secure incomes. This will not only address the distress among farmers, but also generate a positive dynamic in the entire rural economy by enabling farmers to make positive investments into agriculture, by increasing their purchasing power, and by retaining more youth in rural areas.

The policy frame work should ensure that the incomes of the farmers are adequate and assured. This can only be assured when all support systems for farming including extension services, affordable access to productive resources like land, water and seeds, credit, insurance, marketing, infrastructure are ensured to all the farmers. This also needs a lot of improvements in the governance of current support systems, improving the last mile delivery and better targeting.

Farmers Income Security and Direct Income Support

·        The Farmers’ Income Security system should be established through an Act which derives from the Article 21 of the Constitution establishing the Right to Life. This ensures that the institutional systems are responsive and accountable to the farmers. A Farmers Income Commission should be established to implement Income Security. This should be a permanent, statutory body which includes farmer representatives. Income Assessment of agricultural families should be done on a regular basis, tracking the incomes of farming households in terms of various regions, crops and categories.

·        Even while the Act may take time to be passed, an immediate step would be to revamp the existing Commission on Agricultural Costs and Prices, to include the mandate of Incomes in addition to costs and prices. The Commission should immediately put in place the mechanism for annual Income Assessment.

·        The commission should identify Minimum Living Income which needs to be ensured. All the initiatives should target at achieving this. This is also important to fix the Direct Income Support measure. We can look at different ways of determining the desired minimum income level.

·        Minimum Wages approach: As per the Minimum Wages announced by the Central government (Order, September 30, 2016), the minimum wages for a Highly Skilled Worker is Rs.259 per day. Farming being multi-skilled work which combines several diverse operations and complex decision-making should be definitely categorized as Highly Skilled Work. Assuming 2 working persons per family, the minimum monthly household income is Rs.15,540. Note that this figure just considers it as wage labour and does not have any component for the managerial role and the risk-taking financial investment.

·        Parity approach: Pay commission’s definition considers two major points: living expenditure and ability to attract talent; but when it comes to agriculture government considers consumer affordability.

§ The A.P. government, while revising employee salaries in 2014, listed the expenditure on food, water, clothes, education, transport, health, consumables, and so on, to determine the Minimum Pay for employees. This came to Rs.13,000 per month for a household of 3 persons, Rs.17,333 for 4 persons and Rs.21,667 for 5 persons. In addition, the government allocated a school fees allowance of Rs.2500 per child, house rent allowance (12.5%), employees health insurance, etc. Considering a bare minimum family of 4 persons with school allowance for 2 children and no other allowance, this comes to Rs.22,333 per month.

·        Target real cultivators: The real cultivators should be identified who might be tenant farmers or sharecroppers, and they should benefit rather than absentee landlords. Recognition of tenant farmers, women farmers and Adivasi farmers who are currently left out of support systems is a must. Any support is made contingent on actual cultivation. Since the system is based on a minimum income level per household, it will benefit small farmers instead of disproportionately benefiting large farmers.

·        Direct Income Support: Direct Income Support has to be calculated as the short fall of real income than the Minimum Living Income, it can be paid as Direct Income Support.   This also needs to be indexed to the inflation.