Can PM-Kisan be fine-tuned for better impact?

As India moves closer towards the 2024 general elections, the government finances are more constrained than in 2019 when the scheme was originally announced on February 1, 2019, during the interim budget of 2019-2020. A large hike in overall allocation is a good move. The scheme here in focus is the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) Yojna.

It is not that the issue of doubling farmers’ income by 2023 has lost its importance. In the absence of credible data on it, PM-Kisan may be playing an important role, especially in states where farmers’ incomes are considerably low. It is well documented that the farmers utilise this direct income support in purchasing farm inputs even though the amount is meagre and also a few states viz. Odisha and West Bengal have initiated similar schemes.

Though announced on February 1, 2019, PM-Kisan was made effective from December 1, 2018. An amount of Rs 6,000 per year was to be provided to the small and marginal farmers, owning up to two hectares of land.

The number of landholders who received PM-Kisan during April-July, 2022 was 104.5 million. After tightening the eligibility criteria, the number of beneficiaries during the April-July 2023 period came down to 95.3 million. Despite this reduction, PM-Kisan remains a highly successful direct benefit transfer (DBT) through the Aadhaar Enabled Payment System (AEPS) when compared to any other DBT scheme by the Centre.

The allocation for PM-Kisan in Budget 2023-2024 is Rs 60,000 crore. Any increase in the amount for all the eligible categories of landholders would impose a large financial burden. In FY2024, the fiscal deficit is estimated to be 5.9 per cent of GDP. The Finance Minister has announced that by FY 2026 it will be brought down to 4.5 per cent of GDP. A hike in the PM-Kisan may widen the deficit, or else, as has happened in the past, budgetary allocations to the states may be cut down in other schemes — this may negatively affect investments in irrigation and agriculture.

There is enough evidence to show that an increase in public expenditure on investment in agriculture has resulted in much higher payoffs in increasing agricultural growth and reducing rural poverty in the long run than that incurred on input subsidies. Spending on subsidy, be given indirectly on fertiliser, irrigation, power, and other inputs, or directly transferred to a farmer’s bank account is only a short-term measure.

Fiscal deficit, be it on account of more spending on farm subsidies or otherwise, can lead to an increase in the price of commodities (inflation), devaluation of the currency and an increase in the debt burden. The Reserve Bank of India (RBI) has projected growth in the real GDP in FY2024 at 6.5 per cent while inflation is projected at 5.4 per cent. This is despite the challenging global situation.

Of late, the government has tried to contain prices through stock limits, open market sales of food grains, and restrictions on rice exports. In the runup to the elections, the Centre will do everything possible to check food inflation. We suspect if crude prices continue to remain high, the government will not allow oil PSUs to increase fuel prices, even though they have the freedom to do so according to global market prices.

A three-judge bench of Supreme Court is considering whether fiscal responsibility is being compromised due to electoral promises of so-called freebies. It is a moot question if the government will announce enhancing the amount of PM-Kisan before the polls, as was done in 2019, or it would be a part of the Bharatiya Janata Party (BJP)’s manifesto for the 2024 general elections.

One of the major uses of the DBT is better targeting of subsidies and reaching out directly to the desired cohort. In the case of PM-Kisan, this was not done and all the small and marginal landholders (except some categories like ministers, MPs, MLAs, government employees and income taxpayers, etc.) were eligible to receive the amount. After winning the 2019 Lok Sabha polls, the government in its first Cabinet meeting extended the benefit to all landholders, irrespective of the size of their holdings. This may mean that the government is not targeting any specific category of landholders.

Farmers cultivating crops in the rain-fed areas are most susceptible to vagaries of Climate Change and risks due to price and yield. Then there are farmers and tenants who are not able to sell their crops at the minimum support price (MSP), either because the crop is not covered in the price support regime or the failure of government machinery to procure their produce. On the other hand, there are sugarcane growing farmers who are guaranteed to get a fair and remunerative price announced by the government and wheat-paddy growing farmers whose crops are procured by the central agencies.

Targeting PM-Kisan to the farmers who are most in need of financial support may be easier than the argument given in some studies that the amount of subsidies should be transferred to the states for use in the most appropriate manner. In fact, the Centre must put serious thought to its much-debated plan to undertake direct cash transfer of fertiliser subsidy so that its final take on the issue is known to the farmers.

PM-Kisan has provided an opportunity to the Union government to directly target the farmers who are not enjoying the benefit of procurement and guaranteed prices for their crops. From time to time, various options have been discussed to reform the procurement system as it is considered to distort farm economy due to unsustainable monoculture practices, and a tardy pace of crop diversification.

A mere increase in the amount of PM-Kisan in the run-up to general elections may be imprudent.

(Siraj Hussain is former Union Agriculture Secretary, and Seema Bathla is Professor, Centre for the Study of Regional Development, Jawaharlal Nehru University, New Delhi.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.