Replace input subsidy for farmer with direct payments

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M Rajivlochan

Finance minister P Chidambaram expressed some doubts in his Budget speech about the large subsidy the government sets aside each year in the name of the farmer. Yet, he went on to offer Rs 22,452 crore to the fertiliser industry in the hope that those good souls would pass on this money to needy farmers. The Fertiliser Association of India, the pressure group of fertiliser producers of India, how ever, threw a fit, demanding that it be given Rs 48,000 crore this year. 
   Total subsidy in the name of the farmer is considerable. It is given out to a wide variety of organisations concerned with chemicals, fertilisers, irrigation and power. A quick look at the Budget does not provide an idea of the magnitude of the subsidy. The subsidy bill has increased from about Rs 500 crore 25 years ago to over Rs 40,000 crore now.
   There has been repeated criticism of the subsidies on offer in the name of farmers. It is said they are wasteful and go mostly to the rich farmer. The question often asked has been: Does the benefit reach the farmer at all? But a more pertinent question could be: Are the subsidies even designed to reach the cultivator, assuming leakages are zero? The answer is no.
   In the name of subsidising the poor farmer, the government offers free lunches to industry. There are three assumptions implicit in the present policy: organisations which receive government subsidy pass on the benefits they receive to the farmer; that the government rather than farmer knows best on what items the agriculturist should spend and therefore will subsidise only such items; and it is an impossible task, given our present administrative structure, to provide direct cash subsidies to nearly 12 crore cultivators. None of these assumptions is borne out by ground reality.
   Electricity boards argue that the subsidy given to them is to ensure that the farmer pays only a fraction, if at all, of what other consumers pay. However, this grant assumes that the service is actually reaching the farmer. A brief visit to almost any rural area will show that pumps get energised only for a fraction of the time. In some farmer suicide cases reported from Maharashtra, families of the victims said that the farmer was in despair because of the failure of the electricity board to supply him with power. So much is made of the muchreviled promise by various governments to provide farmers with free or cheap electricity that we seldom bother to see whether the farmer
is getting any electricity at all. Is it possible that the farmers, like all of us, would be willing to pay for their power if the government were to supply it reliably?
   The government in its Big Brother role is assumed to know what to subsidise. Most Indian farmers practise dryland farming. Some 60 per cent of our cultivated area does not have irrigation facilities; subsidies on irrigation and power are meaningless here. Should they continue?
   If subsidies are to lower cost of cultivation, then the NSSO survey of 2003, which shows that the cost of cultivation exceeds agricultural income in much of the country, amply demonstrates that the present complicated method of indirect subsidy is a conspicuous failure. Would it not be better to allow the Indian farmer to decide what he wishes to spend on by simply giving him the money directly? The idea that the farmer might spend his money on drink and drugs is baseless. Providing direct subsidy is a difficult but not impossible task, in terms of funds and implementation machinery. 
   If all farmers in India who own land up to four hectares or 10 acres (and this figure comes to 91 per cent of all farmers in India in the light of data provided by the Indian agriculture census of 1995-96) were to be given a flat subsidy of Rs 5,000 per hectare, it would still come to about Rs 49,000 crore, which is not much more than the present level of subsidy.
   The sum would be less than 10 per cent of Indian agricultural GDP and far less than what many other countries do for their farmers. Compare this with the subsidy of $58,885 million that Japan provided to its agriculture in 1999. This amounted to 2.82 per cent of its GDP and 65 per cent of its AGDP. During the same period the US provided $54,009 million, which was 1.32 per cent of its GDP and 24 per cent of its AGDP.
   It is assumed that the Indian government is incapable of distributing this money to the farmer. If the government were to ask one to repose faith in a babu, one would hesitate. But actually in this day and age, the task of distributing money is easily done by routing the money directly to the farmers’ bank account, which the government already does for most transactions with farmers.
   The government already has an extensive system of land records at the village level, so that it is possible to know who sowed what crop in which field and in how much area. So, it should not be difficult to implement direct subsidies.
The writer teaches history at Panjab University, Chandigarh.

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