The State government’s innovative farmers’ investment support scheme Rythu Bandhu has come in for praise from the Reserve Bank of India (RBI).
In its report on the States’ finances released recently, the RBI said Telangana was the first State to announce an income support scheme for farmers which was emulated by six other States which budgeted allocations under their respective income support schemes. The budgeted allocation was over and above the Pradhan Mantri Kisan Samman Nidhi (PM KISAN).
The RBI recalled how the farm loan waivers came under increasing scrutiny in the wake of their adverse impact on the credit culture due to moral hazard among both beneficiaries and non-beneficiaries of the bailout. Thus, as an alternative, income support scheme for farmers was for the first time announced by some State governments, the first being Telangana.
The defining feature of the income support scheme was that they provide cash transfers to farmers which are not linked to volume of production, factor of production employed and prices. “Accordingly, they are categorised as Green Box payments under the agreement on agriculture of the World Trade Organisation,” the report said, adding six States have budgeted an allocation for the income support scheme in 2019-20.
Loan waiver
The report made mention of how the State had earmarked ₹ 12,000 crore each for the scheme during the financial years 2018-19 and 2019-20. This was in addition to the instalments that were being released under the loan waiver scheme announced for farmers. Of the ₹ 17,000 crore loan waiver announced for farmers, the State government had released ₹ 4,250 crore in the years 2014-15 and 2015-16, ₹ 2,957 crore in 2016-17 and ₹ 4,016 crore 2017-18.
The State had made a provision for ₹ 6,000 crore towards the next instalment of farm loan waiver in the budget for 2019-20. The RBI report also appreciated the State for taking to elongated tenor for issuance of securities. “The case of Telangana is instructive as the State has been issuing securities with longer tenors since 2016-17, with the longest tenor being 30 years (currently the longest tenor for State government securities),” the RBI study said.
The report said the effect of this strategy could be observed by comparing its actual redemption pattern vis-à-vis a hypothetical situation of issuance of standard 10-year securities only. “The maturity structure of Telangana debt profile has improved with the weighted average maturity of market borrowings at 14.79 years at the end of March 2019,” the report said.
