Tuesday, November 17, 2015

A proposal on Agricultural Industry Employment & Farm Subsidies

For a nation to be strong, it has to find an efficient way to provide employment to all its citizens in a way that their incomes are above poverty line (so can be taxable, if needed) and contribute towards national self-reliance, wealth accumulation, and power projection.

Recent economic earth-quake reset certain economic rules that have been prevalent for the past century and half. This proposal is based on the ground rules that, India must:
  1. Be able to achieve food security for its huge population.
  2. Develop renewable energy sources (in the absence of proven oil and gas reserves)
  3. Be environmentally conscious
  4. Work towards improving Gross Happiness Index

So that, the end result will be a happy, healthy, environmentally-sound base-economy that can offer high level of employment opportunities to its citizens.

Farm-Subsidy program

The subsidy structure allows that small farmers get the most benefit.
  • 1st acre – Rs 2000
  • 2nd acre – Rs 1000
  • 3rd acre – Rs 750
  • 4th acre – Rs 250
Total: 2000+1000+750+250 = 4000 = Rs 1000 per acre on average.

Note: This proposal was originally made in 2010. Adjusting to inflation, these amounts should be anywhere between 150-200% of these amounts.

This plan envisions to provide a subsidy of Rs 1000 per acre-month (pro-rated) for all the farming families up to a maximum limit of 4-5 acres per family. For example, if a farmer has 1.5 acres of land, s/he will be eligible for Rs 3000 farm subsidy per month and if a farmer has 10 acres of land her/his eligibility will be limited to Rs 4000 per month.

This subsidy if not 100% free. One can either opt to return this money interest free or pay it thru the harvest up to 30% of the yield, whichever is lower. For example, if a farmer owes the government Rs. 18,000 (12 x 1500) and have a total harvest of say 8 tons of rice in that year, s/he can either pay the Rs 18,000 in cash or submit 2.4 tons (30% of 8 tons yield) of rice at Food Corporation of India (FCI), whichever is profitable to the farmer.

This plan also acts as crop-insurance, because in the event that the farmer got only 3 tons of harvest in a particular year, s/he would return only 0.9 tons of harvest and the loan is closed. The farmer will take a new loan next year towards next year’s harvest. 

Employment Scheme in Farm Sector

From CIA Fact Book on India:
  • India Total Land = 2,973,190 Sq.KM = 734,691,248 Acres = 73.47 Crore Acres
  • Irrigated Land = 558,080 Sq.KM = 137,904,571 Acres= 13.79 Crore Acres
  • Arable Land (48.83%) = 1,451,809 Sq.KM = 358,749,736 Acres = 35.87 Crore Acres 
  • Non-Arable Land= 1,521,381 Sq.KM = 375,941,511 Acres = 37.59 Crore Acres

Out of this available land area, taking out the populated areas such that:
  • 100 Cities (population: 20L-1Cr) = 90,000 Sq.KM = 22,239,484 Acres = 2.22 Crore Acres
  • 1000 Towns (population: 50K-20L) = 25,000 Sq.KM = 6,177,635 Acres = 0.62 Crore Acres
  • 600000 villages (1 sq km) = 600,000 Sq.KM = 148,263,229 Acres = 14.83 Crore Acres
TOTAL Populated Ares = 715,000 Sq.KM = 176,680,347 Acres = 17.67 Crore Acres

And permanent Forests of about 27% of total land area
  • Permanent Forests/nature = 806,381 Sq. KM= 199,261,164 Acres = 19.93 Crore Acres

From the non-irrigated arable land area of 35.87 crore acres, Government of India can assign 5 crore acres to 1 crore below poverty line families and offer them Rs 1000 per acre per month subsidy for first 5 years on the pre-condition that they grow:
  • Other type (teak, deodar, other forest type) – 1 Acre
  • Permanent Crops (fruit orchids, bamboos, Eucalyptus, type) – 1 Acre
  • Bio-diesel (Jatropha, palm oil etc) – 2 Acres
  • Arable (vegetables etc) – 1 Acre

  • Arable land - land cultivated for crops like vegetables, wheat, maize, and rice that are replanted after each harvest
  • Permanent crops- land cultivated for crops like citrus, coffee, and rubber that are not replanted after each harvest; includes land under flowering shrubs, fruit trees, nut trees, and vines, but excludes land under trees grown for wood or timber
  • Other - any land not arable or under permanent crops; includes permanent meadows and pastures, forests and woodlands

Given the fact only 20% of the land is used for regular farming, it is highly possible for these farmers to achieve water self-sustainability by following efficient rain-water harvesting techniques.

This plan will automatically bring 1 crore families (~4 crores population = 4% of total population) out of poverty immediately while adding:
  • 10 million acres of new forest lands
  • 10 million acres of commercial timber
  • 20 million acres of bio-diesel = ~3 billion gallons of bio diesel saving ~$3B oil imports from 5th year. The best part is this is green energy and renewable. 
  • 10 million acres of additional food produce.
  • 100 million carbon credits (2.5 credits per acre for the first 3 categories) = 100 million megawatts of electricity production = India can add another 11000 MW of thermal power generation without violating Kyoto protocol.
  • If allowed to rent the land to establish Sterling Energy Systems’ solar power dishes at 3-4 units per acre (so they do not over crowd the land) the farmers can earn additional rent at least another Rs 500 per acre.

Thus India can achieve all the stated objectives: 
  1. Poverty alleviation
  2. Food Security
  3. Energy Security
  4. Forests & Environment
  5. New Economy (eco-friendly employment creation)
  6. Cultural preservation - the tribal population is given economic security without threatening their unique cultures built around environment.

Program Cost
This program envisions a budget outlay of Rs 108,000 Crores split between
  1. Farm Insurance Program: Rs 48,000 Crore for 1Cr small farmers
  2. Agriculture Sector Employment Program: Rs 60,000 Crore for 1 Cr BPL families
Return on Investment
  1. Even in the worst case, the Farm Insurance Program will return a 30% of the total outlay, equal to 14,400 Crores. The actual subsidy component will be between Rs 33,600 Crores to Rs ZERO. This covers all the small farmers in India.
  2. As mentioned above, the Agriculture Sector Employment Program will self-finance itself after five years creating 1 Crore permanent jobs. It is calculated that a Rs 1000 Crore investment in industrial economy would create 15,000 permanent jobs. In this proposed program an investment of Rs 3,00,000 Crore (5 years x 60,000 Cr) is creating 1 Crore permanent jobs compared to 45 Lakh permanent jobs the industrial economy would create for the same amount of investment. 

Program Risks:
  1. The farm subsidy program needs National-Id in place so the program is not misused and the target population receives the benefits directly to their account IN CASH.
  2. Close integration is required between Farm Land registration, National Id program, and Farm Subsidy programs.
  3. The FCI channel can be abused (already highly corrupted channel) during crop collection.
  4. Unemployment Program has to be devised in a way that the land is allotted to Tribal populations only and not sold/resold to politically motivated groups
Author's note: This proposal was originally made in Bharat Rakshak Forum in 2010 under Alternative Budget Scenarios thread. I request readers to participate in the discussion.

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