NEW DELHI : Central and state governments should bring in an equally funded direct cash transfer scheme to all but the well-off in rural areas, replacing existing farm and fertilizer subsidy schemes, to effectively address agrarian distress, former chief economic advisor Arvind Subramanian has argued.

In an article published in Business Standard on Monday, Subramanian, currently a visiting lecturer at Harvard University, and three co-authors make a case for a direct cash transfer to 60-80% of the rural poor that will work as an effective cushion against rural distress. Using an illustrative calculation, the article argues that annual transfer of 18,000 or 1,500 a month to three-fourths of the rural population can be covered at a fiscal cost of about 1.3% of gross domestic product (GDP), or 2.64 trillion in 2019-20 prices. The article cautions against funding it from the RBI’s resources.

Subramanian had argued in Economic Survey 2016-17 that a universal basic income could effectively replace India’s largest social welfare schemes. The latest article, co-authored with Josh Felman, Boban Paul and M.R. Sharan, argues that the time for a scheme guaranteeing basic income regardless of agricultural vagaries has come. Both drought as well as surplus production affect farm incomes. The economists proposed a basic income scheme because it would benefit landless farmers.

A longer paper by the same authors shared by Subramanian says loan waiver schemes are easy to implement but contain the “moral hazard" that vitiates the credit culture and creates perverse incentives —“those who do not borrow from the official system, or borrow and repay, are penalized while delinquents are rewarded".

The suggestion for a basic income scheme for the rural poor from the former chief economic advisor in the finance ministry comes days ahead of the presentation of the Union budget scheduled for 1 February, the final budget by the BJP-led National Democratic Alliance (NDA) government ahead of elections due by April-May. The government is widely expected to announce measures in the interim budget to address rural distress. It has in recent weeks taken steps to ease the credit crunch faced by small businesses and their tax compliance burden.

Addressing rural distress has also become a political imperative for the BJP after losing late last year state elections in Chhattisgarh, Rajasthan and Madhya Pradesh.