Now Farmers will get Cash instead of Subsidies

Government is planning to club all the farm subsidies including the fertilizer costs to be paid in cash to the farmers. There will be an extra cost of Rs.700 billion annually. Finance Ministry has budgeted Rupees 701 billion for farm subsidies in the year ending March 31st.  

This may be considered one more U-turn of the Government of the so many other schemes as GST.   It may also be considered as course correction before the general elections due by May 2019. The Government, which has already exceeded the annual budget deficit target, has little room for spending in the current year, having forgone some tax revenue on goods and services following the defeat in the key states.  

The additional spending would not impact the nation’s fiscal deficit for the current year ending March 31, according to the talk of the town these days. The rupee and bonds rebounded after the report pegged the cost lower than the over Rs.2 trillion estimated initially. 

According to the Bloomberg, quoting the Chief Economist Madan Sabnavis that right now if you do such a thing it will be by cutting down on other costs. They would not go beyond the fiscal deficit target of 3.3 percent of gross domestic product this fiscal year. The views of the other economists are that they expect India to miss the goal for a second year in a row as the administration gives into populist pressures. The current Government is seeking a second term has to win over discontented farmers before the election. They have been hit by falling crop prices and rising input costs, prompting thousands of them to protest in the street to seek debt waivers.  Now the matter is from where the additional funds shall be coming? 

It is not unusual to observe socially supportive fiscal measures being introduced at this point in the election cycle, Andrew Wood, a credit analyst at S&P Global Ratings in Singapore, said in an email response to questions last week. That said, the Indian government does not have significant fiscal space with which to work. 

Prime Minister Narendra Modi’s Government is planning to combine all farm subsidies, including fertilizer costs, and instead pay farmers cash, the people said, asking not to be identified as the discussions aren’t public. The additional cost will be limited to ₹ 70,000 crore ($9.8 billion) annually after a full roll-out of the program, the people said. Finance Minister Arun Jaitley had budgeted ₹ 70,100 crore for farm subsidies in the year ending March 31.