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Budget 2019 sops for agrarian sector: Rs 6,000 to small and marginal farmers good move, but needs enhancement

The NDA government's decision to provide Rs 6,000 per year to each farmer with a land holding of less than 2 hectares is a major boost for the sector that has been witnessing a sharp decline in the numbers of cultivators since 2001. The debate on whether the populist handouts, announced just months before the Lok Sabha elections, can resolve the agrarian crisis will continue for days to come. But one thing is certain: Around 85 percent of Indian farms, or 117 million farming households, will benefit from the Pradhan Mantri Kisan Samman Nidhi Scheme, which will cost the State exchequer Rs 75,000 crore.

To decode this further, we can say that about 69 percent of agricultural households possess land holding of less than 1 hectare. Another 17 percent have land between 1 and 2 hectares, and only 0.4 percent of them own 10 hectares of land or more. This assured income of Rs 500 per month is vital for small and marginal farmers as only 42 percent of them have access to crop loans. This is because farming on 2 hectares or less of land is considered a bad financing proposition for institutional lenders. If we analyse the trend, it becomes clear that only 6 percent of net bank credit goes to small and marginal farmers who have the responsibility of taking care of the needs of around 468 million of the population.

 Budget 2019 sops for agrarian sector: Rs 6,000 to small and marginal farmers good move, but needs enhancement

Representational image. Reuters.

On the policy front, the NDA government led by Prime Minister Narendra Modi had adopted a twin approach after coming to power in 2014— ensure 8 percent of the net bank credit to small and marginal farmers by 2016 and increase their coverage by 10 percent every year. The Centre had admitted that small and marginal farmers face difficulties in accessing credit, which adversely affects inputs and long-term investment in this sector. However, with the number of cultivators dropping and a sharp decline in the share of the workforce engaged in the agriculture sector comprising cultivators and labourers, the government had no other option but to adopt an assured income model — already in force in states like Telangana — to offset the exodus and improve the economic conditions of farmers.

This is also a strong counter to farm loan waivers because the scheme will add to their income as the consumption expenditure per agricultural household against the average monthly income has risen. The average monthly income per farming home during the 2012-13 agricultural year was estimated at Rs 6,226, while the expenditure during the same period was Rs 6,223. Since there is little difference between income and expenditure, a majority of small and marginal farmers household survived through non-farm activities.

According to a government report released in 2016, the average monthly receipt per agricultural household from non-farm businesses was Rs 5,290. This is why an alarming number of farmers are in debt and many commit suicide. About 52 percent of the estimated 90.2 million agricultural households in Rural India reported outstanding loans estimated to be Rs 47,000 per household. The cash announcement may produce the desired result if there is a complete waiver of loans as it can serve as vital assistance for expenses agriculture households incur on productive assets.

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Updated Date: Feb 01, 2019 15:31:33 IST

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