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Direct cash transfers in agriculture gain ground -Sanjeeb Mukherjee
-Business Standard

In November, the government decides to transfer Rs 4.5 a quintal production incentive to bank accounts of sugarcane farmers

Two months ago, the Centre after much deliberation decided to transfer Rs 4.50 a quintal directly into the bank accounts of sugarcane growers. The government called this a production incentive, but it is seen by many as an attempt to kill several birds with one stone.

An incentive directly transferred into the bank accounts of growers to boost production will not attract the strictures from the World Trade Organisation for distorting the market. It also pleases the sugar mills which must pay that much less to growers in the 2015-16 season.

Weeks after this reports started coming in from the cotton growing belt of Maharashtra that the Centre was working on a scheme to compensate farmers directly for losses incurred in selling cotton. The Centre plans to pay the difference between the minimum support price (MSP) of cotton and the prevailing average market rate, and call it differential price payment.

There are also reports that the Uttar Pradesh government has transferred Rs 28.60 per quintal into the bank accounts of sugarcane growers for the 2014-15 crushing season, totalling Rs 2,127.25 crore. And it plans to directly transfer a subsidy of Rs 1,400 per quintal for certified wheat seeds in the 2015-16 rabi season. The condition is the seeds have to be bought from designated agencies at market prices.

All these point towards the growing realisation among the political class on the need for direct transfer of subsidies, incentives and other support to farmers, instead of routing them through companies or state agencies. Subsidy leakage is turning the argument in favour of targeted transfer from the government to beneficiaries, which in this case are farmers.

The success of cash transfers for cooking gas, food and the rural jobs scheme also seem to have convinced the government on adopting the mechanism for agriculture.

"Direct transfer is the most efficient way of distributing subsides and should be tried as and when it can be done, but it should be linked to the volume of inputs," Ramesh Chand, member of NITI Aayog, told Business Standard.

Sources said a big thrust of the new National Policy for Farmers could be on how to boost incomes through direct transfer of subsidies and incentives.

The 2014-15 Economic Survey showed Rs 378,000 crore, or 4.24 per cent of the GDP, is spent on subsidies. Much of this is actually not reaching the poor. Rice, wheat, pulses, sugar, kerosene, cooking gas, naphtha, water, electricity, diesel, fertilisers and iron ore are subsidised under various schemes.

In agriculture, apart from fertilisers, other inputs like seeds, machinery, equipment, irrigation systems and horticulture equipment are subsidised by the government.

States subsidise electricity and water for agriculture. The Economic Survey reckoned power subsidies actually only benefited 67.2 per cent of households that had electrical connections. The top fifth of the population consumes 37 per cent of total electricity subsidies, while the poor consume 10 per cent.

In agriculture, too, subsidies announced from time to time do not reach the beneficiary. Studies show agriculture's share in total direct credit of loans less than Rs 200,000 fell from 92.2 per cent in 1990 to 78.5 per cent in 2000 and 48 per cent in 2011. The bulk of loans advanced for agriculture moved away from small, marginal, or medium farmers, and towards large business interests.

Almost 46 per cent of farm credit is availed between January and March, a period of minimal farming activity across the country, while the total quantum of credit keeps on rising, which points towards misdirected credit.

However, unlike cooking gas or food, where beneficiaries are clearly identified, cash transfers in farming will need more groundwork. Former Union Minister Yogendra Alagh said the only thing that went against cash transfers in agriculture was the difficulty in identification of beneficiaries.

"In sugarcane and cotton, much of the ground-level work is organised and in the hands of cooperatives, where the person who has the operational holding of land is well identified. But in crops where the ownership holding is different from the operational holding, it might be difficult," Alagh said.

Sudhir Panwar, member of the Uttar Pradesh Planning Commission and president of the Kisan Jagriti Manch, said cash transfers were good overall, but in fertlisers these should done cautiously because they limited the total quantum of subsidies.

GOVERNMENT IN ACTION

* In November, the government decides to transfer Rs 4.5 a quintal production incentive to bank accounts of sugarcane farmers
     
* Centre, Maharashtra start working on scheme to pay difference between minimum support price and prevailing average market price of cotton to farmers directly
     
* UP govt transfers Rs 28.60 a quintal into the bank accounts of sugarcane farmers in 2014-15
     
* Rice, wheat, pulses, sugar, kerosene, liquefied natural gas, naphtha, water, electricity, diesel, fertiliser, iron ore and railways are a few commodities and services that the govt subsidises under various schemes
     
* Several of these subsidies do not reach beneficiaries