Interview: Income support schemes for farmers are a cop-out, says economist Abhijit Sen

On January 1, when Indian news agency ANI asked Prime Minister Narendra Modi about the government’s plans to reduce agrarian distress, he said loan waivers do not work as a very small segment of farmers take loans from banks. “A majority of them take loans from money lenders,” said Modi. “When governments make such announcements, those farmers do not become beneficiaries of the waivers.”

Calling loan waivers a political stunt, the prime minister told ANI the government would empower farmers in other ways. In that context, an idea from the South Indian state of Telangana has been getting some attention. The state government gives its farmers Rs 4,000 per acre per year as income support. States like Jharkhand and Odisha have followed suit. The first has announced a Rs 5,000 per acre payment from next year. The second plans to transfer Rs 10,000. There is speculation that the Union government might follow suit.

It is easy to understand why politicians find these ideas attractive. As capital becomes global even as labour stays local, governments are increasingly unable to provide jobs for all their people. One outcome, according to economist Abhijit Sen, a former member of the erstwhile Planning Commission, is that politicians, increasingly unable to find answers, turn to interventions like regular cash payments to the citizenry.

The country needs to tread carefully on this idea. Income transfer schemes come with large questions. Where does the money come from? Given competitive politics, can these burgeon out of control? If so, what happens to developmental expenditure? What happens to a society where states collect revenues from a small handful of businesses and keep a large chunk of the population on the dole? Whom are they more answerable to?

Excerpts from an interview.

After the recent Assembly elections – and the recent farmer protests – there seems to be rising speculation that the Centre might announce income support to farmers. How do these interventions work?
I do not know if the government is talking about universal basic income. That was last discussed some time ago when the Economic Survey raised it as an issue. And that I thought was [former Chief Economic Advisor] Arvind Subramanian doing his own thing.

What there is more chatter about is partial benefits transfer, usually quoting the Telangana model. The state government gives farmers a certain amount per acre, saying this money is meant for investment – but it is money and can be used for anything. It is a cash transfer, one which is not linked to some obligation like NREGA [National Rural Employment Guarantee Act].

Unlike the universal basic income, what Telangana offers does not go to everyone. It is given per acre. So more of it goes to the richer guy. Most importantly, it is linked to your being a farmer. How you define that is a bit up in the air because, on current definition, it does not include anyone who does not have any land. So, sharecroppers are out, landless labourers are out. So if you are in agriculture actually doing the work but on someone else’s field, then you do not get that support.

What are the pros and cons of rolling out such an idea nationally?
It would certainly force all states to get into it, or to at least have their own versions of it. Given the hype everyone has gotten into on the farmers issue, it will be difficult for states to say, ‘We will not join you’. And it is basically a politics we have done so far only for families below the poverty line or for people willing to do manual work. Here, this is for the farmer. And the farmer can be anyone – a person with 10 acres, 20 acres [of land].

There will be a competitive element here. If one state does this, others will have to follow. What are the fallouts? What about state finances?
Yes. It is not a bullet anyone can dodge. Everyone will be stuck with it. The financial burden will be huge. Roughly, India’s cultivated area – not counting double-cropped areas and so on – is 215 million acres. At Rs 4,000 per acre, that is Rs 86,000 crore. You could say Rs 86,000 crore can be done. You cut down on NREGA [National Rural Employment Guarantee Act] to some extent. You do something else. And it would be the BJP government’s scheme rather than continuing with NREGA. There is a trade-off, of course. Some people will lose – and usually it is the poorer people who lose – but maybe politically it will deliver more. I do not know.

The guy who has been doing a song and dance about it is [agricultural economist] Ashok Gulati. I suppose there is the following economic argument: We have been trying to deliver income to farmers through things like MSP [minimum support prices]. Quite apart from the fact that these are not working very well, such schemes create some price distortion or the other, and that is bad economics, and we should move towards less distorting systems of payment. And income support might be one of the less distorting ones.

But wouldn’t it distort labour markets?
It certainly would. It would also mean a lot of people would want to come back to farming. So movement between sectors would be affected. But those would be seen as second-rung affects. The first-rung effect is you are not interfering with pricing. And so, they would say that you do this and then let us get rid of MSP [minimum support prices].

If economists like Dr Gulati favour income support as a replacement to minimum support prices, what about politicians? Why do they find the idea attractive?
Politicians want the maximum political bucks for any given amount of money they have to pay out. And so, they also ask if they can please more people with MSP [minimum support prices] or something like this. To some extent, that itself turns itself into an economics question.

I personally think it is a cop-out. The universal basic income comes with a reduction of other subsidies – the income increasingly becomes the way the government supports people. This idea has been snowballing especially with the recognition that we are passing into a world where you have to accept a much higher level of unemployment. That the idea of work as we know it, regular employment as opposed to the gig economy, will be rare. And so, it says governments should move to a minimum income support from benefits linked to unemployment, health and education.

That is a huge shift. When this idea came in the Economic Survey, it was just idiotic. Not only were you thinking of this as replacing our non-existent unemployment benefits and NREGA [National Rural Employment Guarantee Act] but also the PDS [Public Distribution System], MSP [Minimum Support Price] and making inroads into health and education.

Basically, we shut down a set of welfare arrangements and just give cash. Which sounds like populism further corroding the State, stripping away its core functions and handing over the money it saves. Worse, this can become a competitive race. What does this say about the political establishment?
It shows a lazy political establishment. It also shows their distance. They are too distant from the people they are purportedly trying to help. The obvious thing would be to talk to farmers and ask what they want.

But the real origin of this is business. Its big fear, in a world where jobs are declining, is governments will have to become more active. The only way they would like governments to be more active is “put out some money, we will pay our taxes, do not try to affect how the economy works”.

Where does this model of governance take us?
It takes us to a world where some people can stand on their own feet and there are others – an undifferentiated mass – to whom we regularly give some money. We are already on that track. Ayushman Bharat [National Health Protection Scheme] is a voucher programme. What Telangana does is the same. It says, for farmers, we will give money. The state says this is money meant for investment but I do not think they do anything to enforce that.

Also, Rs 4,000 a year is very little.
Yes.

This reminds me of the New Land Use Policy of Mizoram where the state government gave people Rs 1 lakh, purportedly to move off jhum cultivation (slash and burn agriculture), and families lived off that money.
If India rolled out something like this, in a more meaningful way than little amounts like Rs 4,000 a year, it would mean most of our money would go into this. And the role of the government in developing the country, in public investment, would stand diminished.

On one hand, the State will get committed to a certain expenditure it cannot wriggle away from. And so, its ability to meet other demands will be under huge fiscal pressure. But those demands will not go away either. And so, what you will get is a State which will have to collect more taxes or become a more insensitive State. There will be a trade-off between tax collections and sensitivity towards other developmental functions. Basically saying: Cash toh de diya ab kya hai [I have already given you money, what do you want now]?

Yes. The nature of the State changes for sure.
I would rather live in a State where elections are fought on what each political party gives me better. That is because some institution somewhere will have to start functioning better and the government will have to commit itself to that rather than saying the other party gave you Rs 4,000 but I will give you Rs 5,000. which is a real risk here.

Ayushman Bharat, for example, is very similar to what Rajshekhar Reddy did in Andhra Pradesh. It had its own downsides – primary care facilities got hammered as the government focused on tertiary care. But it triggered discussions around healthcare delivery. Once you start giving cash, you are not going to have such discussions. To assume that all these functions can be performed by just giving cash is to assume the market will devise something. Also, where is the place for thinking about a better society?

The creative agency of the State, its role as an entrepreneur, is gone. The development agenda of the State shrinks.