Kisan Samman Nidhi makes more sense than NYAY
Source: By R. Jagannathan: Mint
The noteworthy thing about the Bharatiya Janata Party (BJP) election manifesto for 2019 is that there is little that is noteworthy about it. And rightly so. A government seeking re-election should use its track record as its manifesto, and focus only on the incremental things it will do if given another term.
One sentence in the manifesto that went largely unnoticed, but may have huge significance, is its reference to the Pradhan Mantri Kisan Samman Nidhi Yojana, which has already been implemented partially through the interim budget. Under this scheme, small and marginal farmers are being paid ₹6,000 per annum in three instalments.
In the BJP’s Sankalp Patra, there is a proposal to “expand the coverage of the scheme to all the farmers in the country". This sentence can be significant for two reasons: One, it can actually enable a deeper reform of agricultural subsidies; and two, it is a bigger step towards universal basic income support than the Congress party’s Nyuntam Aay Yojana (NYAY) scheme to give 20% of the poorest Indian households ₹6,000 per month, or ₹72,000 a year.
While the Congress scheme needs precise targeting, the BJP promises to extend the Kisan Samman to all farmers, making it near-universal. The scheme currently covers around 85% of farmers with land holdings of up to two hectares, but extension to the rest will not bust the budget math too much. There is no need for any targeting, since the annuity will be paid to all farmers, whatever the size of their land holdings.
One can’t say whether BJP really had this in mind, but this is its import. In one fell swoop, it has the wherewithal to make good on its promise to directly increase farmers’ incomes and also achieve subsidy bill reductions by substituting price subsidies with cash transfers. In all probability, while the Congress’s NYAY could be fiscally problematic if it replaces no existing subsidy, BJP’s scheme has the potential to steadily replace subsidies, if implemented in phases, and smartly.
The Kisan Samman has a current annual cost of around ₹75,000 crore at an annual payout size of ₹6,000 to nearly 120 million farmers. If this is extended to all farmers, its cost could rise at most to ₹85,000-90,000 crore. But it would be universal and make subsidy reductions elsewhere more feasible.
Consider this: If all farmers are, for example, offered an additional ₹6,000 as compensation for an abandonment of fertilizer subsidies, which conveniently works out to around ₹75,000 crore annually, no farmer will be worse off through the bargain. The fertilizer subsidy bill can be eliminated or drastically curtailed, and overuse of urea ended.
A small attack on food subsidies also becomes possible. These target two groups, whose interests are not aligned, urban food consumers and rural food producers. If it extending by the same ₹6,000 cash payment to urban consumers (which means another 100 million households), the food subsidy bill could perhaps be cut by half, then that would mean another saving of ₹90,000 crore. The balance of ₹94,000 crore budgeted as food subsidy this year will be enough to take care of minimum support payments and any remaining food subsidies that cannot be avoided in some parts of the country. If the annual payment even needs to be doubled to ₹12,000 for urban consumers, it would still be worth it so long as we can wean citizens off opaque subsidies that distort India’s food and fertilizer markets.
A politically unsure government can offer cash in lieu of super-subsidized rice, wheat and coarse cereals as a choice in rural areas, and as a compulsory scheme in urban areas. Over time, cash will probably triumph, as it gives the citizen flexibility in terms of how she wants to use the money. From a dole recipient, she becomes an empowered consumer.
The one wrinkle that remains in Kisan Samman is that it does not distinguish between landed farmers and tenant farmers, which means the cash transfer may end up in the wrong pockets. The scheme can thus be prioritized in states with good land records, especially those which record tenant farmers. Over a period of five years, it should be possible to offer cash payments directly to those who till the farms, and not only those who own farm land.
The big difference between the Congress’s NYAY and BJP’s Kisan Samman is that the latter is scalable and flexible, and can be universalized pretty easily— first to farmers and then even to urban consumers. It is also fiscally more prudent, because cash payments can be substantially counter-balanced by reductions in current subsidies, thus preventing leakages and keeping fiscal spends at more sensible levels.
The Congress’s scheme does not even talk of reducing any of the major subsidies, and is thus more likely to be fiscally irresponsible than BJP’s scheme. This means we are more likely to end up with runaway inflation under NYAY than Kisan Samman. It is possible that one is imagining the potential of the latter scheme in a way the BJP’s manifesto drafters did not, but if a potential exists for greater sanity in welfarist schemes, one cannot but flag that potential.
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