Why Naveen Patnaik has the best solution for farm distress

Telangana chief minister K Chandrasekhar Rao (popularly called KCR) is the political hero of the hour. At a time when most incumbents are thrashed in state elections, he was re-elected with 87 of 119 seats, improving on his 69 seats five years ago. The main reason for his success was the Rythu Bandhu scheme, giving all farmers a cash grant of Rs 4,000 per cropping season, or Rs 8,000 a year for double-cropped land. Many politicians now see this as the model to follow for political success. But a better model has now been proposed by Odisha CM Naveen Patnaik.

Swaminomics has long argued that Telangana’s cash grant is better than Modi’s ultra-high minimum support prices for crops, for which state governments have neither the administrative nor financial capacity. Even if good implementation were possible, the scheme would be a disaster. By guaranteeing a 50% return on all crops with no regard to domestic demand or exportability, this scheme encourages the production of unwanted, unexportable surpluses.

Global experience proves that farm distress is best relieved by subsidising farmers through cash transfers, not by subsidising crops. KCR’s Telangana model does exactly this, proving that good economics can be good politics too. However, this model has many shortcomings. It benefits the biggest landowners the most, including absentee owners who lease out their land. While giving cash to farm owners, it fails to reach tenants or share croppers doing the actual cultivation. It also fails to benefit landless labourers, the most needy.

These shortcomings are overcome by the Odisha proposal called KALIA (Krushak Assistance for Livelihood and Income Assistance). Patnaik rightly pours scorn on loan waivers in states ruled by the BJP and Congress, since the biggest farmers with the biggest loans are the biggest gainers. Small farmers and agricultural workers often have no farm loans and get no benefit.

KALIA will provide a cash grant of Rs 5,000 per cropping season (Rs 10,000 per year for doublecropped land) to 30 lakh small and marginal farmers in the state. This rightly leaves out two lakh large farmers. The scheme also aims to cover all tenants and sharecroppers who do the actual cultivation, and not absentee landowners.

In addition, KALIA will give 10 lakh landless households cash grants of Rs 12,500 each. This aims to finance the starting costs of ventures like rearing goats and poultry, and producing mushrooms and honey at home. Fisherfolk will get this grant for fishing nets and allied equipment. This aims to especially benefit dalit and tribal households that are most likely to be landless.

By refusing to write off farm loans, Patnaik is helping maintain repayment discipline in the banking system. Loan waivers penalise honest farmers who repay on time, and then look foolish when their neighbours (many of whom can afford to repay), get loans written off. Patnaik says that of the 32 lakh cultivators in the state, only the richest 20 lakh have farm loans, and they should not be the main beneficiaries of an anti-distress programme. Patnaik is absolutely right, and both the BJP and Congress should listen.

However, both the Telangana and Odisha models are difficult to implement. When Andhra Pradesh was split into two, Telangana got the prize city of Hyderabad and its large revenues. It also did a good job of tax collection, producing a revenue boom that KCR lavished on farmers. Few states are so fortunate in either their revenue base or tax administration.

Rythu Bandhu required good, updated land records to succeed. Telangana was able to update its land records quickly, but that is beyond the administrative capacity of many backward states, in which case cash transfers will not reach all deserving beneficiaries. Despite the Jan Dhan Yojana, many poor people do not have bank accounts, or have them in distant places that are not easily accessible. Identifying all small and marginal farmers, sharecroppers, tenants and landless labourers will be a formidable task. Even after identification, ensuring that all of these have bank accounts and arranging cash transfers will be a mammoth task.

In Telangana, KCR saw the hurdles ahead, tackled them early, and so succeeded in reaching the vast majority of beneficiaries, minimising the leakages that have punctured other promising schemes. Odisha is a backward state with fewer financial and administrative resources, so Patnaik faces far greater hurdles than KCR did. He could fail in the short run. Yet in conception, his KALIA model is much fairer and more far-reaching than Rythu Bandhu, and so is a better long-run model for all states.

What do you think?