Krishi Utthan Bill: The way to revamp Agriculture

By: Abhishek Ranjan

MP Ninong Ering will move the Krishi Utthan Bill, 2019 in the upcoming session of Parliament. The Bill seeks to assure a basic income to farmers. The following analysis touches upon the need for the proposal, the merits of competing measures and the framework for implementation.

Farmers’ welfare is a pressing need

According to the 2011 Census, India has over 260 million farmers, including land-owning cultivators as well as agricultural labourers. Farmers constitute a substantial portion of the Indian population, and the number of people dependent on agricultural and allied activities for income is even more. As per the Economic Survey 2017-18, agriculture accounts for 16% of the country’s GDP and 49% of the employment. Moreover, beyond the population that is reliant on the agricultural sector for income, the entire population of the country depends on the sector for meeting its food security needs. All this goes to show the importance of farming and farmers in India. The farmer holds a special place in Indian hearts and minds. Accordingly, improving the income and social security of farmers has been a key policy aim for administrators in India. Successive governments have tried to woo farmers with new schemes providing for subsidies and other support measures.

Despite this, farmers’ distress has blossomed over the years. In 2018, India has seen several farmers protests which have gained national prominence: the Kisan march from Nasik to Mumbai in March, the All India Kisan Sabha’s protest in Delhi in September, the Bharatiya Kisan Union rally in October and the All India Kisan Sangarsh’s march to the Parliament to name a few. National Crime Records Bureau numbers present an even more bleak picture: in 2015 alone, a total of 12602 persons involved in the farming sector committed suicide, accounting for 9.4% of total suicide victims in the country. According to data provided by the Central Government to the Supreme Court, over 12000 suicides were reported in the agricultural sector every year since 2013. The NSSO 70th Round Survey shows that 70% households own farms up to 1 hectare (marginal farmers) and have an average monthly consumption that is more than the total income. This means that 70% farmers do not have the means to meet their needs and must resort to borrowing.

The Statement of Objects and Reasons of the Bill throws light on these statistics and goes on to recognize the many miseries that farmers in this country are exposed to, including the high fragmentation of land, heavy dependence on monsoon, fluctuating income and high indebtedness. The underlying premise is that farmers have been subjected to exploitative practices and failed state policies for decades and hence, it is the responsibility of the government to help farmers in overcoming these adversities.

Existing support measures are not enough

Considering the critical need for intervention in the agrarian sector, various measures have been implemented by the central and state governments including input subsidies, interest subvention and crop insurance. But these schemes are riddled with lacunae and have not been successful in alleviating farmers’ problems. For instance, fertilizer accounts for the second largest subsidy in India. However, only 35% of this subsidy goes to the intended beneficiaries, that is the small and marginal farmers. Similarly, under the Pradhan Mantri Fasal Bima Yojana, just around 45% of the claims made by farmers over three cropping seasons in 2016-18 were paid by the insurance companies.

Another populist measure – farm loan waivers have faced criticism from multiple fronts. Bankers have warned that such debt waivers can wreck repayment discipline and credit culture. The monetary policy committee of the RBI has pointed out that the implementation of farm loan waivers across states could hurt the finances of states and make them throw good money after bad, stoking inflation. Experts also suggest that the declining trend of credit-deposit ratio, owing to farm loan waivers, can induce stress in rural banking. An equity concern exists as well, since only the comparatively better-off farmers have access to bank credit. As per NABARD’s financial inclusion survey, between July 2015 and June 2016, only about 30.3% of agricultural households took institutional loans. The remaining 70% of the Indian peasantry, who do not access institutional credit, are not entitled to any waiver. Thus, the benefit of the scheme is lost on marginal farmers, who continue to remain mired by indebtedness.

Similarly, the politically popular Minimum Support Price (MSP) assured to farmers by the government has also failed to work in the desired manner. The Statement of Objects and Reasons of the Bill recognizes this failure by highlighting the regular cases of distress sales, whenever there is a bumper crop. For instance, in March 2018, farmers growing pulses like chana were receiving only 3/4ths of the MSP. As per NSSO Survey 2012-13, less than 10% of peasantry sold their produce at MSP. The benefit of MSP mostly accrues to larger farmers that have marketable surplus and excludes much of the country’s marginal farmers who produce little to no surplus. Furthermore, an MSP can cause market distortions and unsustainability by influencing crop choices of farmers.

Basic Income for farmers is the way forward

The existing support measures for farmers leave much to be desired. Having recognized this policy failure, the next step is to identify a pragmatic and comprehensive way forward. To this end, one proposal that has been mooted in countries across the world is a universal basic income (UBI). With the goal of providing financial security to all, a UBI is a government guarantee that each citizen shall receive a minimum income. It can be understood as a periodic cash payment unconditionally delivered to all on an individual basis, without any means test or work requirement. The Economic Survey 2016-17 dedicated an entire chapter to analyzing the feasibility of its applicability to India, bringing the idea to the forefront of the policy debate. The Survey recognizes that the poor in India have been treated as objects of government policy. The current welfare system, even when well intentioned, inflicts an indignity upon the poor by assuming that they cannot take economic decisions relevant to their lives. On the other hand, an unconditional cash transfer treats them as agents, not subjects. The transformative benefits of this unconditionality and agency can be seen in the experimental scheme run by Self-Employed Women’s Association in a few villages in Madhya Pradesh. The beneficiaries put their modest cash grants to various productive uses including repaying debts, investing in farm inputs, providing for their children’s education and bearing health care costs. The study’s results negated prejudices regarding the irresponsibility of the poor. It also dismissed concerns regarding possible distortions in the labour market availability, owing to free income in the hands of the workers.

The unconditionality component of UBI is well received across the political spectrum since it secures the values of both liberty and social justice but the universality component is more complex. Some economists argue that if the poorest receive the same transfer payment as the rich, the impact on poverty reduction is likely to be muted. The Survey acknowledges this dilemma in the Indian context and pushes instead for a quasi-universal approach. Arguing that true universality will be politically and fiscally costly, it suggests several ways of preventing the wealthy from availing the grant, including that of demographic targeting.

The Krishi Utthan Bill, 2019 targets one vital demographic in need for an unconditional intervention – farmers. The intended beneficiaries of the Bill are farmers, who are assured a basic income in the form of pro-rata distribution of funds. An SBI report has supported the feasibility of an unconditional cash transfer, targeted at farmers rather than a universal scheme for all citizens. The reason cited is that it will be more equitable, on a per farmer basis, with a meaningful impact. Cash transfers have been hailed by experts to be a more politically and economically viable solution to farmers’ distress than the competing options of farm loan waivers or MSP. Herein, the success of quasi UBI measures such as Telangana’s Rythu Bandhu investment support scheme must be noted. Aimed at relieving farmers of debt burden, the scheme provides a grant of Rs. 4000 per acre per farmer each season for the purchase of inputs of the farmer’s choice for the crop season. The Odisha government’s KALIA scheme which is yet to be rolled out completely takes the coverage one step further by making payments on a per farmer rather than per acre basis, besides including tenants, sharecroppers, landless labourers and other vulnerable agricultural households. Such direct income transfer schemes reach more beneficiaries, dismantle leakages, and are less market distortionary compared to measures like farm loan waivers, MSP increases and inefficient input subsidies. Therefore, basic income for farmers is emerging as the most equitable and effective agricultural support policy with potential for nation-wide implementation.

The Krishi Utthan Bill, 2019 provides a comprehensive solution

The Krishi Utthan Bill, 2019 takes the idea of assuring basic income to farmers and situates it within a viable legislative framework. There is a need for structuring the measure through an Act of the Parliament, rather than relying on the vagaries of executive decision making. This ensures consistency of implementation over successive governments, prioritizing farmers’ welfare over political exigencies. The framework proposed by the Bill can be summarized as:

• setting up of a National Agriculture Council constituting members from all states to deliberate on determination of necessary provisions of this bill;

• levying of profit sharing cess on the first point of sale during inter-state or intra-state supplies of agricultural produce meant for further value addition;

• distribution of cess collected in Agriculture Risk Fund to the distressed farmers for their welfare and development; and

• compensation by the centre and states to farmers who have sold their produce below the MSP or any such price determined by the National Agriculture Council.

Each of these features serves a distinct purpose, as discussed in the Statement of Objects and Reasons of the Bill.

The proposed National Agricultural Council, constituting members from all states, has been envisioned as a tool of cooperative federalism. Successful implementation of policies calls for coordination between the centre and the states as well as among states. For example, reluctance by states to make premium payments has been noted as one of the reasons for the failure of the centre’s flagship crop insurance scheme. Likewise, in the absence of coordination, one state’s policies can have spill-over effects on other states, as had occurred in the case of Madhya Pradesh’s Bhavantar Bhugtan Yojana which caused market distortions and exacerbated distress sales in Maharashtra. Accordingly, the Krishi Utthan Bill creates a mechanism that makes states an equal stakeholder in decision making. Modelled along the lines of the the GST Council, the National Agricultural Council structures the weightage of votes such that the states together account for two-thirds of the votes and the centre holds only a third. Further, any decision can be taken only with a three-fourths majority meaning the states must be more or less in consensus. This allows for coordination in implementation and uniformity in application across states.

The rationale behind levy of a profit sharing cess has been outlined clearly in the Bill’s Statement of Objects and Reasons. Farmers sell agricultural produce at prices that barely cover their input costs, let alone provide a margin. However, after simple value addition by industries and corporate houses, the same produce is sold with massive profit margins. Equity demands that this profit be shared with farmers since their efforts are indispensable to the profit creation. The Bill provides that the proceeds from the cess shall be credited to a non-lapsable Agriculture Risk Fund, wherefrom distributions would be made towards basic income of farmers. One of the major challenges in implementation of a basic income is the immense fiscal cost. The Economic Survey calculates the cost of a quasi universal basic income paid out to only 75% of the population to be 4.9% of the GDP, a prohibitively high cost. Limiting the demographic to farmers alone would not create enough fiscal space either. The NITI Aayog has assessed that pan-India roll-out of a scheme like Telangana’s Rythu Bandhu could cost the exchequer a prohibitive Rs. 2.1 lakh crore per annum. Accordingly, the Krishi Utthan Bill proposes an elegant solution to this problem of fiscal resources by creation of the Agriculture Risk Fund.

The Bill provides that pro-rata distribution of funds be made to farmers recording a lesser income than a specified amount. This ensures that the accrual is in the hands of the most distressed, that is the small and marginal farmers, who do not benefit from other government schemes of loan waivers or MSP. More comprehensively, the Agriculture Risk Fund can also be used for payment of compensation for agricultural losses due to natural disasters and for development of agricultural infrastructure. It must be noted that such payments are to be made in accordance with the prescriptions of the National Agricultural Council and under the supervision of the authorized agency appointed by the Council for this purpose.

The problems of price realization in the MSP regime have been well documented. Therefore, the imminent need is to make good the price deficit so that farmers can receive the assured prices and cover their input costs. This has been attempted by schemes such as Madhya Pradesh’s Bhavantar Bhugtan Yojana, which although criticized for implementation problems like its restrictive registration conditions, is theoretically sound. The Krishi Utthan Bill proposes to execute such a measure on the national level by providing compensation to farmers who have sold their produce below MSP. Nation-wide implementation also means that there would be no price distortions from state to state.

Thus, the Krishi Utthan Bill, 2019 creates funds from profits that should be justifiable shared with farmers and utilizes these funds in improving farmers’ conditions, meeting the specific challenges of low income of farmers, crop losses due to disasters, inadequate farm infrastructure and falling crop prices. It is designed to empower states to build consensus and make policy decisions cooperatively. All in all, it provides a broad-based self-financing framework to alleviate farmers’ distress by assuring a basic income. The Bill addresses the need of the hour and merits swift implementation.

(Abhishek Ranjan is a Research and Policy Analyst, can be reached at ranjanabhish@gmail.com)