The Reserve Bank of India (RBI) is unlikely to clear Telangana Chief Minister K. Chandrasekhar Rao’s (KCR) ambitious scheme of farm subsidy to dole out Rs 5,600 crore, due to the Central government’s policy against cash disbursement.

The KCR-led TRS government plans to distribute the amount to 71 lakh farmers at the rate of Rs 4,000 per acre to around 1.41 crore acres in the state before 15 May. This subsidy is meant for kharif season that begins in the first week of June.

As the Union Ministry of Finance has been discouraging distribution of cash payments to individuals or companies ever since demonetisation on 8 November 2016, and encouraging either digital payments or direct transfer of funds to bank accounts, the RBI is in two minds on allowing Telangana’s request for cash payments to farmers through bearer cheques.

The RBI might consult the Ministry of Finance on this. Senior RBI officials have indicated to the state level bankers’ committee (SLBC) led by the State Bank of India (SBI) recently that the ministry is against flooding the market with cash as it would defeat the purpose of demonetisation.

Under KCR’s scheme, every farmer in Telangana will get a total assistance of Rs 8,000 per acre (for two crops put together) as direct subsidy towards cost of cultivation.

This scheme, in the words of the Chief Minister, is aimed at ending farmers’ suicides and solving their debt crisis to a large extent. This direct cash subsidy drive, in fact, is continuation of a farm loan waiver scheme up to Rs 1 lakh, in a phased manner since June 2014. As part of the loan waiver, the government has been releasing around Rs 5,000 crore every year and it was concluded in early 2017, after the disbursement of around Rs 19,000 crore towards principal loan amounts of farmers.

The actual problem is that most of the farmers haven’t repaid their interest part of their loans and the government has only paid the principal amounts to the banks in four installments. Around 90% of the total 71 lakh farmers in Telangana have still some amount of loan against them due to the accumulation of interest component.

So, if the government releases the subsidy amounts—at the rate of Rs 4,000 per acre per crop—into the accounts of farmers, the banks will naturally credit the amounts against the outstanding dues of farmers and might not release the money to the beneficiaries.

According to sources in the SLBC, on an average, each farmer has an outstanding debt of Rs 15,000 in their accounts.

A Cabinet sub-committee led by Agriculture Minister Pocharam Srinivasa Reddy appointed to decide the mode of payment of subsidy has collected opinions from farmers on how they should get the money. Agriculture Principal Secretary C. Parthasarathi told The Sunday Guardian: “Around 70% of farmers preferred cash, while another 20% want cheques.”

Efforts made by senior officials to persuade the RBI top brass in Mumbai for cash payment of subsidy has failed.

The RBI has finally agreed to payment of cheques, but subject to approval of the local bankers.

As the government intends to issue a unique cheque to each farmer, they need to print a unique identity number on it though it is a bearer cheque, to stop misuse of the scheme.

The SLBC executive which includes all public sector banks, have conveyed to the government that they would be running against time to print these many cheques with unique numbers in the next three months.

The SLBC officials have suggested another way out to the agriculture department—that the cheques issued by the government would be credited to the farmers’ accounts and the amount would be adjusted to the outstanding loans first and the banks will issue fresh loans—of Rs 4,000—to beneficiary farmers. But, this proposal was turned down on account of the possible delay in cash payment to farmers.

Even to pay farmers through cheques, the banks need to keep enough cash with them. This again will be a herculean task for the bankers as the RBI has tightened distribution of cash to banks in different states.

The usual cash quota of Telangana is around Rs 9,000 crore per month. But, the supply has crossed the limit for long—to around Rs 12,000 crore per month, in view of heavy demand from Hyderabad banks.

When agriculture department officials called on RBI officials in Mumbai recently, they were told that the total cash (old notes) deposited in Hyderabad banks since demonetisation was around Rs 1.4 lakh crore, and the banks were supplied much more than that—around Rs 2 lakh crore—in the last two years. So, to supply an additional Rs 5,600 crore specifically for farm subsidy might be tough for the RBI.

Minister Srinivas Reddy told this newspaper: “This is a one-of-its-kind prestigious scheme in India to solve the problems of farmers. Our CM will go to Delhi and take up the issue of cash supply with the PM, if necessary.” As the cash subsidy scheme will make or mar its future in 2019 elections, the TRS government is taking every care to ensure its success.

 

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