Dole is better than loan waiver

New Delhi: The roll-out of income support as a core centrally-sponsored scheme is a better option than debt waiver, India Ratings and Research (Ind-Ra) said on Tuesday.

The ratings agency said that there is likelihood that the Union government may announce a relief package for farmers while presenting the vote on account for 2019-20 in line with the Rythu Bandhu scheme of the Telangana government.

Ind-Ra said that in case the FY20 interim budget announces an income support of Rs 8,000 per acre per annum for marginal and small farmers, a marginal farmer and a small farmer would receive Rs 7,515 and Rs 27,942 per annum on average, respectively.

It said that the levels are significantly lower than the amount conceptualised under the universal basic income scheme for the poor proposed in the Economic Survey 2016-17.

It said that the support would cost the union government exchequer Rs 1,46,800 crore (0.70 per cent of GDP). However, if it is rolled out as a core centrally sponsored scheme, the cost would be split between the union and state governments.

The cost to the union government exchequer would be 0.43 per cent of GDP, while the cost to the combined state government exchequer would be 0.27 per cent of GDP.

“Either way, it is not an easy option," it said.

Besides the Union government, the states whose finances will come under pressure if it is rolled out as a core centrally sponsored scheme are Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, MP, Odisha, Telangana and UP. Only Chhattisgarh and Jharkhand have some fiscal space to accommodate such expenditure, it said.

In addition to the fiscal challenge, Ind-Ra believes that the implementation of such a scheme will depend on a proper land record. The government of Telangana was able to successfully implement the Rythu Bandhu scheme because the state had such records.

Ind-Ra said that the agrarian distress is not new for India and the governments in the past have responded to such a situation in a variety of ways including by increasing public spending in rural areas,  increasing minimum support price (MSP), enhancing agricultural credit, launching the rural employment guarantee scheme and giving loan waivers.

It said that in view of the upcoming general elections, Ind-Ra believes the focus of both union and state budgets 2019-20 would be on measures to address farmers’ woes.

Last week  brokerage firm Anand Rathi had said that roll-out of a pure  Universal Basic Income (UBI) scheme in the interim budget next week would be prohibitively expensive costing Rs 22 lakh crore or 11 per cent of the  GDP.

In its most extensive form, UBI entails unconditional (no quid pro quo), universal (no targeting), periodic (not one-time), cash (not in kind/coupons) payments to individuals (not per family).

However, its impact could be softened and yet target  poorest segments by bringing it into the DBT (direct benefit transfer) scheme with the use of JAM (Jandhan, Aadhar and mobile), the report had. “This and consolidation of existing subsidies and welfare schemes would reduce the fiscal impact to Rs 4-4.5 trillion,” said the report.