NEW DELHI: In a bid to contain the electoral fallout of farm distress, the Narendra Modi government is likely to announce a host of measures in the forthcoming budget, including a direct income transfer scheme for farmers, potentially as a pilot project, to counter the farm loan waiver promised by Congress president Rahul Gandhi.

According to senior government officials who spoke on the condition of anonymity, the transfer scheme will be on a per-farmer basis, and may be limited to small and marginal farmers who own less than five acres.

On 1 February, the National Democratic Alliance government will present its final budget ahead of the general elections, which will be held before its term ends in May. The budget comes in the backdrop of a protracted crisis in rural India led by a sharp fall in crop prices and stagnating rural wages. Besides, the ruling Bharatiya Janata Party was routed in the recently held state elections in agriculturally important states such as Madhya Pradesh, Rajasthan and Chhattisgarh.

“The government is considering options like transferring around 10,000 per farm household per year... it is unlikely that the income transfer scheme will be on a per-acre basis due to fiscal constraints," said one of the officials cited above. “Also, any income transfer scheme is unlikely to subsume existing farm subsidies (like those on fertilizers) in an election year."

Another official said the centre may foot the entire bill for the income transfer and not impose any financial obligation on states, mindful about cornering the electoral dividends. “Whatever the government announces in the budget will ultimately be a political call."

A 10,000 per-farmer income transfer scheme for marginal and small farm households, which number over 126 million, may cost up to 1.3 trillion. Excluding families where a member has a government job or pay income taxes may bring down the total cost of the scheme below 1 trillion. To contain the fiscal implications, the government may roll out the scheme as a pilot, as a signal of its seriousness on implementing it.

Alternatively, a per-acre based income transfer scheme such as the one in Telangana may cost up to 1.9 trillion, since small and marginal farmers cultivate over 74 million hectares of land in India. The second option is unlikely due to the large fiscal burden it will impose, the officials quoted earlier said.

Among other measures, the government may raise the interest subsidy on crop loans so that farmers who repay their loans on time are charged 2% interest instead of 4% currently. Additionally, the government may also reduce the farmers’ share of crop insurance premium to a token amount from the current rate of 1.5-2% of sum assured.

“While the government is desperate to be seen as doing something for the farmers, a pan-India income transfer scheme, coupled with loan waiver schemes announced by states (totalling 1.9 trillion since April 2017) will come at the cost of public investments in agriculture... it will be a future recipe for disaster," said Himanshu, associate professor of economics, Jawaharlal Nehru University, Delhi. “While an income transfer scheme ahead of elections is akin to bribing the voter without trying to solve the problem, the financial impact of such a scheme may push the fiscal deficit to higher than acceptable levels."

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