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View: Don’t deride PM-KISAN yet, data shows it will help rural India’s poorest

Author: Arvind Panagariya & Atisha Kumar
Publication: The Economic Times
Date: February 28, 2019
URL:      https://economictimes.indiatimes.com/news/economy/policy/dont-deride-pm-kisan-yet-data-shows-it-will-help-rural-indias-poorest/articleshow/68191068.cms

For poorest beneficiaries, the transfers under PM-KISAN make a significant contribution to their purchasing power.

The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme will transfer annually Rs 6,000 to every small and marginal farmer. Many in the Opposition have criticised the scheme, arguing that it offers too little to be of real help to farmers. Congress president Rahul Gandhi went as far as describing the scheme as “an insult to everything [farmers] stand and work for”.

This denunciation is largely political. When in power, the UPA government had put in place a subsidy under the National Food Security Act (NFSA) that was roughly equal to the transfer under PM-KISAN on a per-beneficiary basis. One may rhetorically ask, was this subsidy, too, an insult to its beneficiaries?

To those steeped in the elite culture of Lutyens’ Delhi, almost any transfer that is feasible within India’s tight fiscal constraints appears laughably low. We are reminded of the acrimonious debate on the Tendulkar poverty line in 2011. One commentator had argued then that at this poverty line, he could not even buy two bananas per meal in Delhi’s Jor Bagh. Had the commentator checked the basket of goods that poverty-line households actually bought, he may have argued his case differently.

Nevertheless, it is important to ask whether the subsidies given by GoI make a material difference to the welfare of their recipients, or are largely symbolic, meant to woo voters. Our short answer is that for the poorest beneficiaries, the transfers under PM-KISAN make a significant contribution to their purchasing power. This conclusion is strengthened greatly once we add the NFSA contributions and wages received under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

The latest National Sample Survey Office (NSSO) Expenditure Survey 2011-12 provides data on the expenditure levels of rural households, ranging from the poorest to the richest across states. Assuming that these expenditures grew uniformly at the same rate as nominal per-capita net state domestic product (NSDP) between 2011-12 and 2017-18, we can estimate state-wise nominal expenditures of different rural households in 2017-18. We can then calculate the transfers under different government schemes as proportions of these expenditures.

The Cash Adds Up

We perform this exercise for four states: Bihar, Uttar Pradesh, Odisha and Maharashtra.

Consider Odisha. Our estimated nominal monthly household expenditures in 2017-18 in rural areas in this state are Rs 4,059, Rs 4,734 and Rs 5,431 for the bottom 10%, 20% and 30% of rural households respectively. Therefore, the monthly transfer of Rs 500 per household under PM-KISAN adds 12.3%, 10.6% and 9.2% to expenditures of the three categories of households respectively.

Estimated monthly household expenditures for other states are higher than those in Odisha. But in all four states, the transfers add 5.5% or more to the expenditures of the bottom 30% of rural households. For the bottom 5% of the households, the additions range from 8.3% in Maharashtra to 13.7% in Odisha. The transfers, thus, make a significant contribution to the purchasing power of households living in abject poverty.

Transfers by GoI become particularly substantial once we take into account two other government programmes: NFSA and MGNREGA. Strictly speaking, wages under MGNREGA are not transfers, since they are offered in return for beneficiary’s labour. Nonetheless, they constitute a guaranteed income by the government and, as such, may be counted as its contribution.

Based on available retail prices of rice and wheat in respective state capitals, monthly subsidies under the NFSA in 2017-18 amounted to Rs 440 or more per household in the four states. Average monthly NREGA wage payments per participating household in the same year ranged from Rs 496 in Uttar Pradesh to Rs 814 in Maharashtra.

Our estimates for Odisha place the joint contribution of PM-KISAN, NFSA and MGNREGA at 37.6%, 32.3% and 28.1% for the bottom 10%, 20% and 30% of rural households respectively. In all four states, the benefit constitutes 18.6% or more for the bottom 30% of rural households. For the bottom 10%, they range from just above one-quarter of monthly expenditures in Uttar Pradesh to 37.6% in Odisha.

Our calculations are restricted to three major central government programmes. Additional programmes providing rural housing, rural electrification, crop insurance, school education, health insurance and LPG (liquefied petroleum gas) connections also have substantial elements of subsidies for the poor. Yet more transfers come from state governments.

Reform, the Biggest Reform

It is ironic that many critics who view the transfers as too small to be consequential also advocate spreading them widely, even universalising them. To expand significantly the amount of transfers to the bottom 30% of households who suffer from abject poverty, we need to cast the net of transfers narrowly, not widely. Schemes such as Rythu Bandhu in Telangana could help the poor more if confined to small and marginal farmers.

Given its fiscal resources, today, India makes substantial transfers to its poor. If the situation nevertheless looks unsatisfactory, it is because the incomes that the rural poor earn for themselves remain abysmally small. Only economic reforms that would help create large numbers of good jobs in industry and services to which some of the rural poor can migrate can solve this problem.

- (Panagariya and Kumar are Professor and Research Scholar, respectively, Columbia University, US)
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