A Minimum Basic Income For Small And Marginal Farms May Just Be Affordable

The failure of Finland’s experiment with universal basic income (UBI), where some 2,000 unemployed Finns were given around $685 monthly (Rs 45,000 at current exchange rates), is no reason to abandon the idea altogether. Rather, it should be a spur to try out other pilots in multiple areas so that over the next decade, we know what works best.

In India, where the big challenge in not just jobs, but getting farmers out of underproductive and subsistence farming, we need to try out our own variants of UBI. One area where this should be tried out is the agriculture sector, where underemployment is rampant, with agriculture supporting three times the people compared to its share of gross domestic product (GDP).

Some basic numbers would help clarify the debate.

According to the last agricultural census (which pertains to 2010-11, with the 2015-16 census report due this year), India had 138 million operational holdings, an increase of 7 per cent over 2005-06. This is testimony to the fact that land holdings continue to splinter, making the average size of holdings more and more uneconomic. (You can download the full agricultural census report here)

The average operational holding is now down to 1.15 hectares from the earlier 1.23 hectares.

The census classifies those with less than two hectares as small or marginal farmers, and 85 per cent of operational holdings represent small or marginal farmers.

India has around 93 million marginal farmers (those with less than one hectare), and 25 million small farmers (those with under two hectares but above one hectare).

Most farm loan waivers by states target these two groups, and it is thus fair to say that if farm distress is to be alleviated, it is this group that needs to be helped. The Narendra Modi government’s promise to double farm incomes will not become a reality unless this group’s incomes see a rise.

Can this happen?

One way to experiment with UBI in India is to make it universal only for a specific group; and this group could be farmers with less viable farm sizes. A targeted farm basic income that focuses on those with less than two hectares can be a viable option even given current finances.

In Budget 2018-19, fertiliser subsidies accounted for Rs 70,000 crore and food for Rs 169,300 crore. That’s Rs 239,000 crore.

If most of the fertiliser subsidy is eliminated, and a part of the food subsidy too is, it is possible to fund all small and marginal farmers (or operating units) with an average additional income of Rs 5,000 for kharif and another Rs 5,000 for rabi – Rs 10,000 annually per operational holding. The actual payment should be inversely pro-rated, with those holding less than one hectare getting a bit more than those holding upto two hectares. (Swaminathan Aiyar suggests Rs 4,000 per acre and abolition of all subsidies).

Paying Rs 10,000 annually to 117 million operating holdings that qualify as small or marginal farms will cost Rs 117,000 crore – the bulk of which can be financed from subsidy savings on fertiliser. Since this amount would come as additional income to farmers (over and above the prices they get for their produce in the market), there would be a real boost to rural incomes without necessarily busting the fiscal math.

There will be several intangible benefits from this form of basic income targeted at small and marginal farmers.

One, this can reduce pressures for future farm loan waivers.

Two, the extra money will obviously help farmers to spend a bit more in boosting productivity, and free excess family labour to upskill themselves and look for more paying jobs outside agriculture.

Three, the overuse of agricultural subsidies on fertiliser will come down, as fertiliser prices move closer to market rates.

Four, the gradual reduction in food subsidy will end the distortion in the food market, but the subsidy will continue in the foreseeable future until it is possible to pay it out in direct cash transfer to the urban and rural poor.

If this cash support to small and marginal farmers is supplemented with several other liberalisation measures, India’s farm economy will finally be liberated from the tyranny of state interventions and distorted pricing.

Future reforms should include the following:

#1: Ending inter-state and export barriers so that farmers can get a better price for their produce.

#2: Provision of facilities to sell crops in the forward market so that farmers are not exploited by middlemen.

#3: Restriction of MSP support to buffer stock operations, with states being left free to offer higher prices for farm produce depending on their particular needs.

#4: A gradual dismantling of the Food Corporation of India, and shift of procurement operations to state-level agencies.

A minimum basic income targeted at small and marginal farm holdings may be a good place to start. As for those who are landless, we already have schemes like Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) to guarantee them a minimum income. The scheme can be extended for all off-season work at two-thirds the wages paid currently. Alternatively, it could be converted into a proper unemployment dole for the landless at half the MNREGA rate that involves doing some work.