Economics Prelims cum Mains

Quasi-UBI: Rythu Bandhu can be the social & agri policy template

Universal basic income:

  • Last year’s Economic Survey had caused a debate on the idea of universal basic income (UBI).
  • A version of UBI is being implemented in India by the Telangana government.

Telangana’s Rythu Bandhu scheme as a type of UBI:

  • Telangana’s Rythu Bandhu policy can be said to be an embryonic QUBI (a quasi-UBI).
  • The policy could potentially also be the future of agricultural policy in India.

QUBI – UBI that is not exactly universal:

  • India will never provide basic income that is literally universal (as our politics will never let government cheques being sent to the rich).
  • But, government transfers to everyone except those at the top is a serious policy contender.
  • And, such a scheme would be a QUBI.
  • More generally, QUBIs are schemes in which transfers are given to everyone who meets an easily identifiable criterion.
  • That is, they are universal within a clearly identifiable category.

 

Rythu Bandhu scheme:

  • Telangan’s Rythu Bandhu scheme provides investment support to farmers to buy seeds, fertilizer and other inputs.
  • The input assistance is crucial in reducing the stress on farmers.
  • An amount of Rs 4,000 for Kharif and Rs 4,000 for Rabi seasons will be paid separately via cheques.
  • It is aimed at extending the benefit to everyone who had land, whether it was tilled or not.
  • District collectors in the state are responsible for physical verification of each farmer and his land.
  • The beneficiaries are identified according to an updated land records.

Rythu Bandhu as QBI:

  • In the Rythu Bandhu scheme, those in “universal within a clearly identifiable category” are all farmers who own land.
  • This criterion can be applied because Telangana has successfully titled nearly all land holdings.

 

Problem with Rythu Bandhu – farm acreage as the unit:

  • Rythu Bandhu has one undesirable property as social policy.
  • Because payments to households are based on farm size, they can become regressive (hence the pressures to exclude large farmers from the scheme).

A more UBI type scheme makes household a unit:

  • In contrast, a pure UBI in which the same rupee amount is given to all households will be progressive because the effective subsidy rate (transfers as a share of household income) will be greater for the poor and decline with rising income.

 

 

Rythu Bandhu can become the future of agricultural policy

Issues with current agriculture support:

  • There are problems with the current system of support for agriculture, with a large number of schemes for various problems.
    • For bad harvest: There are schemes for bad harvests (monsoon failures) such as crop insurance and loan waivers.
    • For good harvest: There are schemes for good harvests (bumper crops that depress prices) such as MSP-plus-procurement and price deficiency schemes.
    • General support: And then, there are schemes independent of outcomes such as the various subsidies on inputs (fertilisers, seeds, power, and water).
  • Rythu Bandhu today is provided in addition to these schemes and hence can become fiscally unsustainable.

Rythu Bandhu can replace all agri schemes:

  • Rythu Bandhu, if adopted differently, could be the future of agricultural policy.
  • Rather than in addition to other agriculture scheme, if Rythu Bandhu is instead used to replace some or all of these schemes, three critical advantages would ensue.

Advantages of having Rythu Bandhu as the only scheme for agriculture:

  1. Cut down costs in delivering many services:
  • The surfeit of state capacity/administrative apparatus, as well as financial resources, devoted to administering multiple schemes could be economised on.
  • It will also prevent all the patronage and corruption and inefficiency in delivering the schemes.
  1. Transfers can augment farm incomes:
  • The amounts that can be transferred can be increased so that farm incomes can be augmented substantially and quickly.
  • Example: Calculations show that eliminating the fertiliser and power subsidy in Punjab would finance an annual transfer of about Rs 92,000 to every cultivator or Rs 50,000 to every agricultural worker.
    • This compares with median agricultural household income of Rs 150,000 in Punjab, according to official estimates for the year 2013.
  1. Farmers’ production patterns can change:
  • Farm income could be decoupled from production.
  • This can prevent the serious distortions that have been created, especially from over-production of cereals and the over-use of water and fertilisers.

 

What till it take for other states to adopt Rythu Bandhu type of schemes?

  • Karnataka has been contemplating a scheme similar to Rythu Bandhu and it seems that other states could follow.
  • It will take some time and effort before schemes like Rythu Bandhu can be adopted in other states.
  1. Land Titling:
  • The other states will first have to introduce comprehensive land titling.
  1. Decide on type of policy:
  • A decision will need to be made on whether the scheme should be more social policy or agricultural policy.
  • As agricultural policy, the per-acre payment has a rationale.
  • But, as social policy, Rythu Bandhu will have to be rethought and replaced by something more progressive: for example, a common payment to all households just conditional on being a farmer.
  1. Non land owners must be made eligible:
  • It will be important to bring cultivators into the fold, as not all those who derive their income from agriculture are land owners.
  • Under Rythu Bandhu, the hope is that market forces will lead to land owners sharing some of its benefits with agricultural labour.
  • But, that might not be effective.
  1. Keeping it simple:
  • The usual pressures to cater to various groups—such as providing differing amounts of assistance to different types of farmers or different types of agriculture, irrigated versus rainfed—will lead to demands for finer targeting.
  • This will lead to complexity of implementation as was seen with the GST.
  • This temptation must be avoided.

 

Can be a case of cooperative federalism for implementing QUBI:

  • Schemes like Rythu Bandhu must be done within a cooperative federalism framework.
  • This is because of a fundamental complementarity: states control the implementation apparatus (namely, the land titling) while the Centre can provide resources.
  • Centre-State deal: A kind of deal is possible between the Centre and the states.
    • For example, the Centre could offer to finance part of the scheme, finding the funds by reducing the fertiliser subsidy.
    • Alternatively, the Centre could convert some of its tied transfers into untied ones, giving states the freedom to use them for schemes of their choice, including QUBI to farmers.

 

Conclusion:

  • The Economic Survey argued that UBI offered an opportunity to eliminate poverty in one stroke or rather one click (for cash transfers).
  • A QUBI like Telangana’s Rythu Bandhu scheme—with some modification, preparation, and cooperation–affords a similar opportunity.
  • It could augment farmers’ incomes and reduce agrarian distress in a way that is good social, and even better, agricultural policy.

 

Importance:

GS Paper III: Indian Economy

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