Vol. 11, Special Issue 6 (2022)

Author(s):
Ashish Verma, SP Singh, Jyoti Kachroo, M Iqbal Jeelani, Santosh Kumar Singh, Palvi Sharma, Goldy Bhagat and Maninder Singh

Abstract:
PM-KISAN is a union government funded scheme launched in December 2018 to help farmers purchase various agricultural inputs. Payments under the scheme started in February 2019. It provides to each eligible farmer’s family 6000 Rupees (Rs.) per year in three instalments of Rs.2000 each. Initially, farmers with less than 2 hectares (ha) of land were eligible; subsequently, beginning in June 2019, the scheme was extended to all farmers totally 140 million across India. In India, more than half of its farming households do not have access to formal credit. In such situation, the introduction of cash transfer scheme (Pradhan Mantri Kisan Samman Nidhi, or PM-KISAN) in December 2018 to ease the liquidity constraints of Indian farmers for farmers for procuring inputs is quite salient. Sadoulet, de Janvry and Davis (2001) displayed a multiplier effect of cash transfers. All of these studies implies that a productive investment in short run may lead to sustained long-term impacts. Conceptually, a cash transfer can encourage farmers to spend an amount of money on productive activities for several reasons. First, it may help in easing incumbent credit and liquidity constraints on purchasing agricultural inputs, extremely pertinent in India. Adesina (1996) concluded that access to credit encourages fertilizer use. Secondly, Cash transfer increases the net incomes of farmers and thus, in turn, may enhance their risk-taking capacity, leading them to undertake riskier but comparatively more productive investments. Yet cash transfer beneficiaries’ investment in productive activities may be limited in developing countries (Maluccio 2010). In the general, the effects of cash transfer on outcomes such as household consumption, educational attainment and health are well analysed (Gertler 2004; Fiszbein and Schady 2009; Adato and Bassett 2009). However, the impacts of cash transfers on agriculture sector are comparatively less studied including, importantly their impact on technology adoption (examples includes Sadulet, de Janvry, and Davis 2001; Gertla, Martinez and Rubio-Codina 2006; Hanshofer and Shapiro 2016; and Tirivayi, Knowles and Davis 2016). In this context, PM-KISAN presents a natural experiment to access the effects of cash transfers. For the intervention to provide long-term impacts, there must be investment in productive activity. In this context, Gertler, Martinez and Rubio-Codina (2006) and Handa et al. (2018) have shown that small monthly cash transfers may lead to increased consumption even after beneficiaries leave the program. Haushofer and Shapiro (2016) showed that a large unconditional transfer to poor households may increase future earning by encouraging investments in livestock.