India’s largest bank bats for the government’s proposed cash handouts to farmers but says they must be unconditional

• The Modi administration is said to be planning a direct cash transfer scheme for farmers as opposed to subsidies.
  
• The government-owned State Bank of India (SBI) has supported the proposal, saying that it can be cash neutral once the government winds down its subsidy and insurance support schemes.
  
• However, the scheme can only be unconditional in the short-term as the central government doesn’t have the resources or legal infrastructure in place to ascertain landholding size.
  

Earlier this week, news reports emerged that the Modi administration was planning a direct cash transfer to farmers as opposed to subsidies.

The reports lent further credence to the fact that the Indian government had decided against another series of loan waivers in its upcoming interim Budget, opting for income support and interest-free loans instead after assessing the state of its fiscal deficit.

The annual cost of the cash transfer programme, excluding implementation costs, is pegged at ₹700 billion. In fact, the government is reportedly planning to fund these direct cash transfers by winding down its farmer subsidy programmes, which includes its fertilizer aid scheme.

Yesterday, the government-owned State Bank of India (SBI), India’s largest bank, put out a report batting for the direct cash transfer proposal, a move that was also supported by IMF Chief Economist Gita Gopinath. The total allocation to the subsidy and insurance support schemes in the 2018-2019 was around ₹981 billion, which is 2.9% of India’s GDP.

Doing away with subsidies would free up an ample amount of funding for the cash transfer scheme, according to the SBI report.

As per SBI’s calculations, a beneficiary of the government’s current farmer subsidy schemes receives a cash payment in the range of ₹5,335 and ₹10,162 on an annual basis. Hence, using a rough estimate of 100 million beneficiaries, the budgetary allocation to the cash transfer scheme would have to be around ₹1- ₹1.2 trillion - at an average individual payment ₹10,000- ₹12,000 - to ensure the exercise doesn’t add to the government’s existing financial burden.

Additionally, the report pointed out that an unconditional direct cash transfer scheme would be more viable than a Universal Basic Income (UBI) or a conditional transfer scheme like Telangana’s Rythu Bandhu. Under that scheme, the government of Telangana provides smallholder farmers a handout of ₹4,000 per acre on an annual basis for investment in two crops. However, that hinges on the digitisation of land data in several states like Bihar, Tamil Nadu and Jharkhand.

The central government doesn’t have the on-ground resources in place to adequately identify beneficiaries and verify their landholdings. That makes an unconditional cash transfer programme is more realistic in the short-term.


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