DBT of central, state aid in agriculture still riddled with challenges

One of the several policy issues identified by the Central government during the fortnight long ‘Vikshit Bharat Krishi Abhiyan’ based on their extensive interactions with farmers was the need to move towards direct transfer of all subsidy schemes and assistance that the Centre and states give, instead of routing them through intermediaries.

 

The Abhiyan, which concluded a few weeks back, has identified a set of policy initiatives which the Central government could adopt in the years to come; the move towards a more direct transfer of benefits is one of them.

 

In fact, DBT was also one of the ideas that Union Agriculture Minister Shivraj Singh Chouhan was most interested in during a presentation on the findings from a campaign held in Delhi a few weeks earlier.

 

DBT in agriculture has been an idea that has been in the works for the past several years with varying degrees of success as funds for many Central and state government schemes do get transferred into the bank accounts of farmers.

 

PM-KISAN is a prime example of DBT using the Aadhaar platform, with several thousand crores of rupees being regularly transferred directly into the account of millions of farmers over the past few years.

 

Similarly, there are many state-specific schemes, such as KALIA in Odisha, where income support is transferred into the bank account of farmers using the Aadhaar platform as well as other digital initiatives.

 

What remains the Holy Grail of DBT is the direct transfer of input subsidies into the bank accounts of farmers, and within it, the transfer of fertiliser subsidies.

 

Of all the items for which DBT can be implemented, fertiliser subsidy stands out as being the most doable in the short term.

 

However, past attempts to implement DBT in agriculture inputs have not yielded the desired results due to multiplicity of problems including fragmented land holdings, faulty titling of land, and reluctance on part of states to cooperate on such initiatives, among others.

 

In India subsidies on most inputs are not given directly to farmers; instead, they receive subsidised supplies 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 states in case of electricity and water, companies in case of fertilizers, and banks in case of interest subvention). 

 

Subsidies versus Investment

 

Let us examine the per-hectare input subsidy if it is transferred directly into the bank account of farmers and what the challenges in administering the same are.

 

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

 

The subsidies constitute around 18 per cent of the cost of production of an average farmer, excluding labour.

 

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

 

Other studies done by NITI Aayog member and eminent agriculture economist Ramesh Chand show that almost 80-90 per cent of agriculture subsidies go to the crop sector in the form of fertiliser and power subsidies, while 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 input subsidies while investments are declining, 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.

 

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

 

Can DBT be a game-changer?

 

If all input subsidies could be transferred by DBT, a rough back-of-the-envelope calculation done by NITI Aayog a few years back showed that at 2018-19 levels, a lump sum amount of Rs 15,431 could be transferred per hectare in lieu of six major subsidies.

 

These include subsidies on fertiliser, power, credit subsidy (mainly interest subvention on short-term crop loans), insurance, seed and subsidy given for machinery and irrigation equipment.

 

In case of subsidies in which states have a significant share, like power and irrigation, the total amount was calculated based on a pooled formula.

 

The estimates show that if the experiment were to be replicated nationwide, the Centre would incur an expenditure of around Rs 2.1 trillion in order to abolish six major farm-related subsidies.

 

Some reports said that extrapolating the same calculation to 2022-23 levels would mean an DBT transfer of around Rs 23000-24,000 per hectare.

 

Implementation and Challenges

 

While implementing such a DBT on input subsidies is advisable as per some experts, the road ahead is strewn with multiple challenges, complexities, and obstacles.

 

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

 

To make things more complicated, adjusting the per hectare subsidy rates for inflation - given prices will keep fluctuating - and other complexities due to cost variation and differential rate of subsidy to fertiliser manufacturers could be highly challenging.

 

DBT and absentee landlord or tenant farmers

 

A major problem, though, involves distinguishing between tenant cultivators and those who own the land but don’t 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 percent out of the total estimated 101.98 million operational holdings (i.e. farms) in rural India were on leased lands. The share of such leased-in lands in the total area used for agricultural production was 13 per cent. In the previous survey held in 2012-13, NSO had pegged the share of leased-in holdings at 11.3 per cent, and 6.5 per cent as the share of such lands used in agriculture.

 

This suggests 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.

 

What's more, the actual number of tenant holdings or leased holdings could be much more, as several experts said that most of these lease agreements are oral and do not have paperwork behind them.

 

Former CACP chairman, the late Tajmul Haque, had shown that almost 57 per cent of the leased land in kharif season and 54 per cent in the rabi season was on short-term leases and did not have tenurial security or stability.

 

Not only that, a study conducted a few years ago by grassroots organisation ‘Rythu Swarajya Vedika’ found that only 0.4 per cent of the tenant farmers received a share of the much vaunted ‘Rythu Bandhu’ income support of the then Telangana government from the landlords, while just 1 per cent received compensation for crop damage, even though 77 per cent of them suffered some sort of damage in the previous three preceding years.

 

It also found that the projected number of tenant farmers in Telangana was almost 2.2 million, twice what is projected by the NSSO in its last report. 

 

What pilots for subsidy DBT have shown

 

India has been experimenting with several DBT models in fertiliser to ensure that subsidy is paid directly into the bank account of farmers and that there is no pilferage. However, most of them have not met with much success.

 

At present, the version of DBT in fertilisers already in place involves farmers purchasing fertilisers through Point of Sale (POS) devices after undergoing Aadhaar authentication.

 

This ensures that the identity of the person who purchases the fertiliser bags is well established.

 

However, there is no restriction on the number of bags that each farmer can purchase, which sometimes leads to excess usage and chances of misuse.

 

To curb this, officials said that a system was being considered where farmers’ details would be fed on the POS machines, including the details of the land he holds. As soon as the Aadhar details are entered, those details, including size, would show up on the machines and would be calculated to estimate how many bags of urea, DAP, or NKPS he is entitled to. The state government was supposed to feed all the relevant farmer details on the POS machines which would then be used for this process. However, that model failed to see the light of day due to stringent opposition from states and farmers alike.

 

Clearly, DBT as a concept looks rosy on paper but its on-ground implementation is riddled with challenges as experience from the last many years have clearly shown.