Agrarian distress was one of the biggest issues in the 2019 Lok Sabha elections and the BJP government knew it had to do something to show it cared. PM Kisan was launched in the pre-poll budget on February 1, 2019 but was made operational from December 1, 2018, three months before launch date, primarily to ensure that it was able to transfer some money to the farmers before the country went to polls.
Since the scheme was not a part of the original budget for the last fiscal, the government did not have any direct heads to get the money from. Desperate to ‘do something’ for the farmers, the government diverted ₹20,000 crore came at the cost of the petroleum subsidy dues of the state-owned oil-marketing companies, the Business Standard had reported in March this year.
While the scheme was first brought in for small and marginal farmers and the scheme was expected to cover about 12 crore farming families, the BJP government decided to remove the cap on land-holding size, taking the total covered farmers to 14.5 crore. From a scheme that was expected to provide some relief to the BJP from rural distress, the BJP converted it to a scheme that would boost rural consumption.
The scheme also marks a major shift in agrarian policies of the government as the BJP government clearly wants to bye-pass the states and build a direct financial delivery pipeline to the farmers in the country. We could see a marked reduction in subsidies over the next few years, an increase in the input prices and greater direct transfer to the farmers.
The scheme was born more out political necessity than any clear shift in the policy paradigm.
As Ms Nirmala Sitharaman presents her first budget, the key question is if the government has the fiscal space to implement schemes like PM Kisan, which helped the BJP return to power.
The government went into an overdrive of statistical jugglery to meet the Fiscal Deficit targets but even ‘Jugaad economics’ has its limits. Viral Acharya’s exit from the RBI may allow the government to get more out of the central bank in the short term but even that may not be enough for the government to balance its books.
While the PM-Kisan scheme has its benefits, the key question is if the government has the fiscal space to spend ₹87,217.50 crore annually?
Revenue receipts have taken a hit as direct taxes fell short by ₹74,774 crore and indirect taxes by ₹93,198 crore, compared to even the revised estimates. This created a situation where the growth in the indirect tax revenue has been just 2.3% in the 2019 fiscal and there have been reports that the direct tax collections have been inflated by making excessive demands which have to refunded with interest in the following years.
The government clearly does not have the fiscal space to finance a scheme but PM Kisan was never about fiscal prudence, it was about political compulsions. It was needed because the BJP’s farm policies failed to deliver. The question now is how will the government deliver on the scheme when it clearly short of money?
The answer is simple, the government could turn to what is could only be called ‘Jugad economics.’ It would build a grand budget with non-realistic revenue targets and then, cut down expenditure as revenue collections fall way short of the targets. And then the government finds it difficult to meet revenue targets based on revised estimates, leading to greater fiscal jugglery.
As of June 21, the government has spent ₹12,305 crore under the scheme but only around four crore beneficiaries (of the 14.5 crore expected now that land holding limits have been waived) have been identified. Of these 3.39 crore farmers were given the first instalment while 2.97 crore farmers have been given the second instalment (as of June 25, 2019). It is unlikely that the BJP government would be able to identify and link all the 14.5 crore farmers to the scheme by the end of the current fiscal.
While ‘Jugad Economics’ might work this fiscal, the bigger question is if the ₹6,000 per annum income support would be enough to bring back smiles to the farming community. Considering that 808 farmers committed suicide in Maharashtra between January and April, even after 22.57 lakh farmers were given the first instalment, it seems unlikely that it would. A lot more needs to be done.