(Bloomberg) -- Prime Minister Narendra Modi is studying three options, including a cash handout for farmers, people with knowledge of the matter said, as his administration seeks to ease an agrarian distress and shore up popular support ahead of next year’s general election.
The government is weighing options including a monthly income support program for farmers, a cash handout plan for the shortfall between the actual sale price and state-set procurement rate and a revamped crop insurance program, people familiar with the matter said, asking not to be identified as they aren’t authorized to speak to the media. The final program could be one of these or a combination of all three.
The plan for the handout comes soon after the ruling Bharatiya Janata Party was voted out in key state elections this month, forcing Modi to draw up a course correction before federal polls due by May. The government, which has already exceeded the annual budget gap aim, has little room for spending in the current year, having forgone some tax revenue on goods and services following the defeat.
The income support program involves a certain amount as monthly payout to farmers and could benefit as many as 150 million farm households, a key bloc that can influence the election outcome.
Distress Sales
In July, the government raised support prices of crops such as cotton, soybeans and paddy rice to ensure farmers get at least 50 percent more than the estimated production costs. While that has largely failed to shield farmers from distress sales due to lack of sufficient state procurement, the government now plans to pay cash to farmers if their produce sells at a discount to the government-set rates.
Another alternative being considered is a revamp of the crop insurance program. The changes could include a reduction in premium paid by farmers, inclusion of more crops to avail state incentives and bringing tenant farmers under the cover.
Finance ministry spokesman D.S. Malik didn’t respond to two calls made to his mobile phone. An agriculture ministry spokeswoman declined to comment.
Modi, who is seeking a second term, has to win over farmers before the election. They have been hit by falling crop prices and rising input costs, forcing them to hit the streets seeking debt waivers and protection from distress sales. Add to it, the pressure from opposition Indian National Congress which waived off farm loans after wresting power from the BJP in three states earlier this month.
The income support program could help reduce poverty in a country that’s home to a third of the world’s poor and still spends less than 2 percent of its gross domestic product on social security.
With the government already exceeding its budgeted annual deficit in October, any sops will need to be balanced with possible reductions in spending to achieve the fiscal gap target of 3.3 percent of gross domestic product.
©2019 Bloomberg L.P.
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