Opinion

A scheme that can score over PM-Kisan

Biswajit Mandal | Updated on November 28, 2019 Published on November 28, 2019

What’s needed is a package, determined on the basis of actual income, that incentivises work while addressing poverty

The popularity of the Pradhan Mantri Kisan Samman Nidhi, widely known as PM-Kisan, cannot be denied. The scheme, in brief, promises an annual income support of ₹6,000 to nearly 12 crore small and marginal farmers with landholding of maximum two hectares (approximately five acres).

However, the income transfer under PM-Kisan is not absolutely ‘unconditional’. The family would be entitled to receive such transfer only on production of landholding record. However, there’s a “no strings attached” flavour to this scheme too, as without performing any productive activity the families can register themselves for such government dole, and would receive ₹6,000 in a year in three equal instalments.

 

Like other comparable income transfer schemes in different parts of the globe, PM-Kisan also suffers from some niggling issues. Critics have been crying hoarse on the ‘inflationary’ dimension of the scheme. An increase in disposable income due to income transfer can indeed be inflationary if it is not appropriately assisted by sufficient increase in supply of goods. Income without work may essentially encourage a state of idleness.

This has two ill-effects: a drop in supply of goods and services, and an upsurge in overall unemployment level of the economy. Once production is thwarted, producer would cut back employment additionally in the next period inducing lower income for all segments of workers as well. Therefore, instead of moving towards virtuous cycle we may be revert to vicious cycle. So, the scheme faces a huge problem in the form of disincentivising production and related increase in unemployment.

Dole economics has never been perceived as a formidable long-run solution for the people suffering from economic feebleness. Instead it provides a kind of momentary relief to arrange for two square meals for a family deprived of any stable source of income. In view of this short-term solution, a better structure of income transfer to the selected poor may be devised that would not disincentivise entrepreneurship and work effort while providing a first round respite from abject poverty.

We propose a framework where the subsidy amount would have to be determined on the basis of actual income. The more the individual or the family earn, the subsidy amount given to him must increase as a reward for higher work effort. But it should increase at a decreasing rate signifying that a maximum percentage subsidy is apportioned for the poorest of the poor. Alongside we must also ensure that income ranking of the people should remain same even after transfer of subsidy.

The prerequisites

Before moving to other components of this proposed scheme by us, let’s look at the prerequisites for such policy. Only a single authenticated document would be enough in this context — a family income certificate. This can be supplied by government officials at either the district or panchayat level. However, we do recognise that this process would naturally beget corruption given our socio-economic structure.

Another alternative is to get everything digitised in order to simultaneously empower both the government and the person concerned to confirm the authenticity of the income of the person and the resultant income certificate. Provision of income certificate addresses another lacuna that the PM-Kisan fails to disentangle.

Since PM-Kisan is based on landholding, a sizeable amount of landless workers, who equally require this benefit, are left outside the purview of the said income transfer plan. Income comes through two major channels: from sale of produce that serves the purpose of farmers with landholding of maximum two hectares; and from the sale of labour that fits well with landless workers. So, a list of eligible beneficiaries based on income is capable of bringing in all the hapless underprivileged people irrespective of their nature of employment and endowment.

Such a scheme may concurrently address three other pertinent concerns as well. The first is related with the process of sale of produce. Produce, especially of rural people, principally may be of two types — agricultural and non-agricultural. Whenever the process of sale is digitised, income received by agricultural farmers, landless labourers, and non-farm workers are recorded.

This obviously minimises chances of tax evasion, though it is not very prudent to think of the earnings of the poor as more than what is considered as the maximum limit for tax exemption. The issue, however, takes an interesting turn when we take up the policy of minimum support price (MSP) for agricultural output.

One should also recollect that the present government had pledged to double farmers’ income. One anticipated avenue to ensure such an enormous increase in farmers’ income is to effect agricultural sale through different kisan mandis at a prefixed MSP which is higher than what the market could guarantee. And, official buying of agricultural goods from farmers would automatically register the name of the farmers, the head of the family, and their incomes.

Therefore, total income of a family can easily be traced out from government accounts. This is a step forward towards bringing agriculture under the tax net.

The second one is the sale of labour by rural workers, be it agricultural or non-agricultural. The government may contemplate setting up an agency and entrusting it with the responsibility of enlisting prospective labour suppliers for any predetermined dates and days. The buyers would contact the agency with their choice of work and get the required amount of labour directly supplied by the agency. In exchange the buyer would pay the agency, and the agency would transfer the money to the actual recipient. In a healthy democracy, the panchayats may also be assigned the task. This method would essentially help to maintain a digitised record of income of workers and their families.

A more systematic record of such transactions and income would immensely assist the policymakers to partially identify the nature of vulnerability and the sources of their income. Depending on this information a more precise target group may be identified for other specific benefits.

Larger transfers

From the Table it becomes apparent that the amount of government transfer increases with actual earned income. This would encourage people to work more. In an unemployment-ridden economy motivating more activities not only helps reduce poverty, but also leads to higher production, further investment, and more employment. The percentage of government transfer we have considered here is merely arbitrary and shows how the alternative transfer amount could have been calculated.

Another important phenomenon of the alternative mechanism is that the original ranking of the individual or family in respect of income does not change after receiving subsidy. This non-changing income ranking is important for society in general. If subsidy makes the poor relatively richer than those who were richer before, it would invite stiff resistance, and make the income subsidy scheme politically unviable.

Mandal is Associate Professor of Economics at Visva Bharati University, Santiniketan. and Chaudhuri is Associate Professor of Economics at

St. Xavier’s College (Autonomous), Kolkata

Published on November 28, 2019
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.