Budget 2019 has been a big-bang in many ways. The PM-Kisan Samman Nidhi Yojana (PMKSNY), a straight income transfer to farmers, is a small beginning of the universal basic income (UBI) that found mention in the Economic Survey 2016-17.

UBI serves as a safety net against imminent job losses from emerging technologies. India’s current agrarian crisis has created a chance to use this innovative economic policy.

It is not unreasonable to believe that since the Survey put the proposal on the table, the present government found time to work it out with budgetary and political calculations. Open expert consultations across the table on UBI had drawn active inputs from the best minds in the diaspora.

The Survey had said that the UBI need not be seen as a charity. The market’s failure to arrive at true prices of many important services is well recognised in the theory of externalities and is a leading reason for the failure in delivering public services.

But the income support, dubbed as pittance by the Opposition, may feel like a bonanza for the farmer.

Some would argue that the recipient would enjoy leisure and even become idle. The income support scheme is expected to help farmers living at the edge of subsistence while also giving them an incentive to prosper.

Boosting productivity

An assured income can also encourage farmers to boost productivity and help them earn more. The cash received, if invested in agriculture for higher returns, will be a support to the credit and insurance systems and promote agricultural growth in the country.

With the support of a minimum income, youths from farm households may be inspired to start enterprises or take time out for higher training or even look for higher paying non-farm jobs. However, some beneficiaries will will use the support income to fulfil unmet wishes such as buying a mobile phone or a kitchen gadget.

But even if some poor farmers indulge in conspicuous consumption, that will also help in creating demand for such products and benefit the overall economy. In the worst case scenario, the extra income may be spent on alcohol, which could lead to domestic violence and conflict. To avoid this we would need to supplement the income support scheme with some amount of social engineering.

If the income transfers lead to farmers moving out of farming, which is likely, then there is the fear of farm land being diverted to other use.

But under the current proposal, only farmers with land holdings are qualified for the scheme. But does the scheme impose a condition that the land must be cultivated? If not would this not result in underutilisation of land or diversion of farm land for other commercial use?

Given these apprehensions, a sound land use plan and an incentive to raise crop yields should be made part of the scheme.

Finally, is land-linked income transfer efficient? One major criticism against Telangana’s Rythu Bandhu scheme is that it ignores tenant farmers and landless labourers. But even farmers holding two hectares of land could experience poverty if they are saddled with poor quality land, water shortage and unremunerative prices for their produce.

What if a marginal or a small farmer’s family member gets a remunerative job? Going by this logic all farmers regardless of landholdings deserve an income transfer. Some have argued that Odisha’s scheme for farmers should have served as a model for the Centre. But here identifying the beneficiaries would prove to be challenging. Farm labourers and workers in ancillary services including local level food processing and transport also deserve income support.

The PMKSNY is a good beginning but needs fine-tuning.

The writer is Professor, Institute of Economic Growth

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