The roll-out of income support as a core centrally sponsored scheme is a better option than debt waiver, India Ratings and Research (Ind-Ra) said on Tuesday.
There is a 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 Telangana government, it added.
The agrarian distress is not new for India. In the past, governments have responded to such a situation in a variety of ways.
They increased public spending in rural areas, increased minimum support price (MSP), enhanced agricultural credit and enhanced extension activities, launched a rural employment guarantee scheme, gave a waiver of farm loans and provided direct income support.
In view of the upcoming general elections in April-May this year, Ind-Ra said the focus of both union and state budgets 2019-20 will be on measures to address farmers’ woes.
In case the FY20 interim budget announces income support of Rs 8,000 per acre per annum for marginal and small farmers, a marginal farmer and a small farmer will 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 will cost the union government exchequer Rs. 1,468 billion (0.70 per cent of GDP).
However, if it is rolled out as a core centrally sponsored scheme, the cost will be split between the union and state governments. The cost to the union government exchequer will be 0.43 per cent of GDP while the cost to combined state government exchequer will be 0.27 per cent of GDP.
Either way, it is not an easy option, said Ind-Ra. 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. In addition to the fiscal challenge, Ind-Ra said, the implementation of such a scheme will depend on proper land records.
The government of Telangana was able to successfully implement the Rythu Bandhu scheme because the state had such records.