Is DBT the solution for agri subsidy transfers? There is no direct answer

In India, farmers receive subsidised supply of inputs as agriculture subsidies and the difference between the actual cost of supplying and the price paid by the farmers is reimbursed to the suppliers

Recently, when a group of farmers and agriculture sector experts met with the finance minister for the annual pre-budget meeting, one striking point was the demand for the transfer of major input subsidies through the Direct Benefit Transfer (DBT) mode, which many favoured as a way out in controlling fiscal slippages.

 

The demand was also relevant in view of the long and persistent problem of administering inputs subsidies directly to the beneficiaries rather than routing them through intermediaries.

 

In India, subsidies on most inputs are not given directly to farmers. Instead, farmers receive a subsidised supply of inputs, and the difference between the actual cost of supplying and the price paid by the farmers is reimbursed to the suppliers (which can be the state governments in the case of electricity and water, companies in the case of fertilisers and banks in case of interest subvention).

 

So, what could be the per hectare input subsidy if it is transferred directly into the bank account of farmers and what could be the challenges in administering the same?

 

Subsidies versus investment

 

As per an estimate by the National Institute of Agriculture Economics and Policy Research (NIAEPR), a body under the Indian Council of Agriculture Research (ICAR), as of 2019-20 levels, India gave around Rs 2.20 trillion as inputs subsidies to farmers, which includes both Centre and states combined.

 

The subsidies constitute around 18 per cent of the cost of production of an average farmer, which does not include labour.

Of this estimated subsidy, around 36 per cent is fertiliser subsidy, 37 per cent is power subsidy (both Centre and states combined), 7 per cent is interest subvention on short-term crop loans and the other 21 per cent.

 

Other studies done by NITI Aayog member and eminent agriculture economist Ramesh Chand show that almost 80-90 per cent of the agriculture subsidies go to the crop sector in the form of fertiliser and power subsidies. In comparison, its share in the agriculture Gross Value Added (GVA) is just around 11.5 per cent.

 

Also, over the years, the share of power subsidies to agriculture as a proportion of total subsidies has risen from 15 per cent to almost 36 per cent now.

 

And, while the share of subsidies as a percentage of GVA of agriculture has risen steadily, the share of public investments to the same has gone down, which shows that much of the spending in agriculture is by way of inputs subsidies while the investments are going down which could be highly problematic in the long run.

 

Between 2016-17 and 2020-21, while the share of public investments in GVA of agriculture and allied activities has gone down from 2.63 per cent to 2.13 per cent, the share of subsidies in the same has risen from 6.31 per cent to 6.93 per cent.

The skewed matrix calls for reimagining the input subsidies for agriculture and allied activities.

 

DBT amount

 

So what could be the per hectare inputs subsidies if all is transferred through DBT? A rough back-of-the-envelope calculation shows that it could be around Rs 15,835 per hectare at 2019-20 levels on a net sown area basis. The net sown area in India is around 140-141 million hectares per annum.

 

Extrapolating the same calculation at 2022-23 levels would mean a DBT transfer of around Rs 23,000-24,000 per hectare.

 

Implementation and Challenges

 

While implementing DBT on input subsidies is advisable, as per some experts, it is riddled with multiple challenges, complexities and roadblocks.

 

Experts said that a per hectare inputs subsidy transfer through DBT will need to hammer out the problems associated with variation in input use at the micro-level, varying composition of input requirements of different farmers, and problems in merging subsidies of the Centre and state governments.

 

Additionally, adjusting the per hectare subsidy rates to inflation as prices will keep on fluctuating every now and then, and complexities due to cost variation and differential subsidy rate to fertiliser manufacturers could be highly challenging too.

Another major problem in this is distinguishing between tenant cultivators and those who own the land but do not cultivate it.

 

According to some reports as per the National Statistical Office’s (NSO) ‘Situation Assessment of Agricultural Households’ survey for 2018-19, 17.3 per cent out of the total estimated 101.98 million operational holdings (i.e. farms) in rural India were leased lands.

 

While the share of such leased-in lands in the total area used for agricultural production was 13 per cent, in the previous surveys, NSO had pegged the share of leased-in holdings at 11.3 per cent and 6.5 per cent, respectively.

 

This clearly means that the share of leased land in India’s total estimated operational holdings has been rising over the years; ignoring such a large portion of cultivators from any DBT calculation would be imprudent.

 

The actual number of tenant holdings or leased holdings is much more, as several experts said that most of these leases are oral and do not have recorded details.

 

Former CACP chairman, Late Tajmul Haque, in a study showed that almost 57 per cent of the leased land in Kharif season and 54 per cent in the rabi season were on short-term leases and did not have tenurial security or stability.

 

The Centre’s PM-KISAN platform and the proposed data stack to be built on that, along with Kisan Credit Card (KCC) details, could provide a fair idea and starting point as to who could be the beneficiaries of this DBT transfer of inputs subsidy. Still, the process could be highly inadequate because it represents only those who own land.

 

Agriculture Subsidies, 2019-20- Some facts

 

• Amount of input subsidies to agriculture: Rs 2.20 lakh crore (37 per cent of total subsidies).
• Subsidies constitute 18 per cent of the input cost of an avg farmer (including labour)
• Of the total input subsidies, 37 per cent is power subsidies at the 2019-20 levels
• Of the total inputs subsidies, 36 per cent is fertiliser subsidies, while 7 per cent is interest subvention subsidy at 2019-20 levels
• If all of this is transferred directly into the bank account of farmers at 2019-20 levels, it would mean a transfer of Rs 15,835 per hectare (on a net sown area basis)

 

Source: NIAEPR