The PM-KISAN is the first major central government income support scheme for farmers in India. The Narendra Modi government announced the scheme in the interim Budget in February and recently expanded it in its first cabinet meeting after coming back to power in May.
Some states, notably Telangana and Odisha, have introduced such schemes much earlier.
The questions we need to ask are these: What are the implications of this new emphasis on income support scheme for India’s existing social policy regime? Particularly, has this new scheme made the MGNREGS (designed primarily as a targeted anti-poverty scheme) redundant? And, should the MGNREGS budget be diverted to the PM-KISAN?
MGNREGS funds for PM-KISAN?
The PM-KISAN can be financed by repurposing funds from existing schemes or with new revenue.
The previous government continued to support the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) despite its initial scepticism. But will the launch of PM-KISAN herald the end of the MGNREGS? Do they substitute each other or are they complementary?
The MGNREGS is a well-targeted scheme because of its self-targeting design. A beneficiary is required to perform relatively unpleasant work for relatively little money – those who have other employment opportunities will automatically choose not to seek benefits under the MGNREGS. It targets agricultural labour households, more than cultivators. In this sense, it is complementary to the PM-KISAN.
However, this self-targeting feature is not costless. If the beneficiary has to give up other work to benefit from the MGNREGS, the net benefit to the beneficiary is reduced. In addition, there is a material cost involved since employment is generated by building an asset, like a pond or a road, which needs material beyond labour.
While previously, many MGNREGS assets were public assets, a majority of them are now built on individual farms of small or SC/ST farmers. These assets can be farm ponds, livestock sheds or houses. Providing employment through such assets can lead to considerable overlap with the beneficiaries of the PM-KISAN because not only is it creating assets on small farmers’ land, the same target group as the PM-KISAN, it is also improving their farm productivity.
The MGNREGS and the PM-KISAN are thus complementary in another sense – the MGNREGS has the potential to improve productivity on individual farms and, potentially, raise demand for local agricultural labour.
Therefore, the case for replacing the MGNREGS with the PM-KISAN is weak.
Improve execution of MGNREGS
The focus, instead, should be on fully leveraging the PM-KISAN’s complementarity with the MGNREGS. To achieve that, the government needs to take immediate steps to improve the implementation of the MGNREGS.
- Match budget provisions to demand: While, in the last five years, the government had significantly enhanced the MGNREGS’ allocations, these were still not sufficient to meet pending liabilities. According to the data analysed by the CPR’s Accountability Initiative, the liabilities rose from Rs 724 crore in FY 2014-15 to Rs 5,932 crore in FY 2018-19 (till December 2018).
- Pay wages on time: An important consequence of pending liabilities is delayed wages. Recent changes in payment mechanisms, ostensibly to reduce corruption – like linking payments with Aadhaar – have served to exacerbate this problem (Dreze, 2017). The primary delay occurs after administrative paperwork is completed, and the funds have to be transferred to the state government account and then to the beneficiaries.
- Link wage payments to state minimum wages & rural inflation: Another consequence is stagnant wages. The MGNREGS wage hikes have been 2.7 per cent in 2017 and 2.9 per cent in 2018. According to CPR’s Accountability Initiative’s analysis, more than half of the states in 2016-17 paid an average wage that was less than the notified wage rate. We think that the government should reconsider its decision of accepting the recommendations of the Nagesh Singh committee on delinking the MGNREGS wages from the state minimum wages.
- Strengthen the role of gram panchayats in asset creation: Early in its previous term, the government had sought to ensure that the assets created were durable and effective. The primary approach was to emphasise ‘convergence’ by linking assets created under the MGNREGS to other asset creation programmes. Prominent among these are rural housing and sanitation schemes.
While, in principle, convergence is likely to improve overall efficiency, in the specific context of the MGNREGS, this has served to undermine the legally mandated role of gram panchayats. The design of the MGNREGS allows a unique opportunity to alter the implementation architecture for rural service delivery by devolving 50 per cent of the funds to gram panchayats. A critical role envisaged for them is to prepare a locally specific plan (or shelf of works in government parlance) that will link assets to be created under the MGNREGS to the locally relevant needs. After all, local governments, rather than bureaucrats sitting in New Delhi and state capitals, are likely to have a better understanding of local needs and will be able to identify the right kind of assets that need construction. The convergence model, however, renders this vital planning function of the panchayats irrelevant. This is because asset decisions are tied to schemes designed in New Delhi rather than to the local infrastructure needs identified through local government planning. Importantly, it results in centralisation of funds as vital expenditure decisions are now distanced from local governments. The emphasis on convergence ought to give way to the harder task of building panchayat capability – including basic human resources – to make plans and develop shelves of work, including assets needed to improve infrastructure on local SC/ST and small farmer lands. This becomes even more crucial as rural housing and sanitation is saturated and the need for infrastructure to improve agricultural productivity remains.
Other ways of financing PM-KISAN
If not the MGNREGS budget, can other subsidies be reduced? The case for enhancing the PM-KISAN by reorienting fertiliser and perhaps even electricity subsidies is strong.
- Fertiliser and electricity subsidies: The PM-KISAN can transform fertiliser and electricity subsidies into a size-independent cash transfer, which will leave the small farmer better off than before. According to an estimate, eliminating fertiliser and power subsidy in Punjab in 2013 could have financed an annual transfer of about Rs 92,000 to every cultivator or Rs 50,000 to every agricultural worker.
- Additional taxes: The revenue from increased tax efficiency or higher tax rates can be used to finance the PM-KISAN. One may want to use this sparingly given the other demands on the Budget.
Safety net, not springboard
In the end, providing a safety net is just one function of the government. In a rapidly growing and an aspirational lndia, we need to also think about reliable springboards to enable rural children and youth to access the potential of the modern non-farm economy. The PM-KISAN, in that sense, is a safety net; it is not designed to be a springboard.
It’s true that income support can occasionally deliver a large bang for the buck. For instance, by easing cash constraints, it can lead to less indebtedness and better price realisations by removing the need to enter into buyback arrangements at low pre-set prices. It can also encourage diversification of incomes by enabling investment in non-farm activities. It can increase household savings.
But beyond safety nets, if we wish to build a reliable springboard for our future, we need to build consensus on making resources available and the mechanisms for delivering high-quality basic services, such as health and education, safe water supply, to everyone. Here, cash is not always the king.
Yamini Aiyar is the president and CEO of Centre for Policy Research. Partha Mukhopadhyay is a senior fellow at CPR.
This is the twenty-fifth in a series of articles titled “Policy Challenges 2019-2024” under ThePrint-Centre for Policy Research (CPR) collaboration. A longer version of this piece is available on the CPR website at www.cprindia.org. The full policy document on a range of issues addressed in this series is available on CPR’s website.
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