Droughts, Distress and a Conditional Cash Transfer Program to Mitigate the Impact of Drought in Bihar, India Avinash Kishore ([email protected]), PK Joshi ([email protected]) and Divya Pandey ([email protected]) International Food Policy Research Institute NASC Complex, CG Block Dev Prakash Shastri Road (Opp. Todapur) Pusa, New Delhi 110012 India Fax: +91 11 2584.8008 / 2584.657 Abstract Paddy—Bihar’s staple crop—is vulnerable to droughts, primarily due to high cost of irrigation. In 2008, Bihar government launched a conditional cash transfer scheme to subsidise diesel for irrigation in drought affected areas. We show that this scheme has not been effective in mitigating the impact of drought on paddy production. A primary survey of potential and actual beneficiaries shows that low awareness and penetration among smallholders, alongside uncertainties and delays in the disbursal of the subsidy, make it ineffective. We suggest that in states with limited capacity, such ad-hoc subsidies are unlikely to protect smallholders from weather shocks. 1 1. Introduction Agriculture in India has always been vulnerable to the vagaries of monsoon (Kumar et al., 2004). The rainfall related volatility in agricultural production is a big concern for food security, economic development, and household welfare in India and other tropical countries (Rosenzweig & Hillel, 2008; World Bank, 2007). These concerns have grown in recent years as altered rainfall patterns have become frequent, resulting in short run crop failures and long run production declines. Bihar, the third largest and the poorest state of India, has been facing such heightened concerns in recent yearsi. Large parts of the state (Table 1) have experienced droughts in four out of the five years between 2009 and 2013ii (Figure 1) with terrible consequences for the state’s agricultural economy and its 110 million people. Recent work by the Indian Council of Agricultural Research (ICAR), suggests that such weather irregularities are likely to become more common in Bihar in years to come, as 24 of 38 districts in the state are extremely vulnerable to climate change (Sehgal et al., 2013). In 2008, Government of Bihar launched a large conditional cash transfer (CCT) scheme to mitigate the impact of drought on crop area and production in the state. The scheme encourages farmers to sustain area and yield of their kharif crops by increasing application of groundwater in drought affected areas through a non-distortionary subsidy on diesel. Almost three million farmers applied for diesel subsidy in the paddy season of 2013 and since its launch, the scheme has delivered USD 284 million to farmers in drought affected areas of the state (see Table 2). It is one of the largest CCT schemes meant to mitigate the impact of drought on crop production anywhere in the developing world. It has the largest budget outlay among the array of drought mitigation schemes implemented by government of Bihar (Kishore et al., 2014). The large and growing budgetary allocation to this scheme by a state with scarce resources and other possible options to make agriculture more resilient to droughts, heightens the need to evaluate it for its effectiveness in achieving its goals. We present the first assessment of this large CCT scheme in Bihar. To the best of our knowledge, this is the first such assessment of an agriculture focused CCT programme anywhere in Asia or Africa. 1.1. Cash transfer programmes in agriculture This paper contributes to two strands of literature on agricultural policies. The first strand is the somewhat sparse literature on the impact and functioning of cash transfers programmes in agricultural sector. There have been very few CCT programmes conditioned upon specific agricultural inputs or practices. As a result, 2 there are not many studies of such programmes. Mexico’s Programa de Apoyos Directos al Campo or PROCAMPO, launched in 1994, is a prominent exception. Under the programme, eligible farmers were provided with a fixed payment per hectare, which was conditioned on the production of nine key crops. Sadoulet et al. (2001) find that the transfers through this programme did allow the beneficiaries to increase their purchase of agricultural inputs, though the gains for households with small landholdings were lower than that for medium and large farmers. To the best of our knowledge, ours is the first study outside of Latin America, to assess the impact (or lack thereof) of a large CCT programme conditioned on agricultural inputs or actions. Many evaluations of CCT programmes, not conditioned on agricultural inputs or practices, have reported direct or indirect impact of the cash transfer on agricultural outcomes. For example, Veras Soares et al. (2010), find that a CCT programme in Paraguay, called Tekoporã, led to increase in investment in agricultural production even when the cash transfer in this programme was conditioned on school attendance, visits to health clinics, and updating of immunizations. The beneficiary households had invested up to 50 per cent more in agricultural production than non-beneficiary households. Similarly, Todd et al. (2010) find that Mexico’s Oportunidades programme, though conditioned on health and nutrition related activities, also led to increase in spending on crop production, land usage, livestock usage, and consumption of food from own production. Red de Protección Social, a poverty reduction programme in Nicaragua with conditioned upon on school attendance and health related activities had a weak, but positive effect on spending on agricultural activities (Maluccio, 2007). Apart from CCTs, studies of unconditional cash transfer schemes for poverty reduction have also reported similarly positive effect on investment in agriculture. For instance, a study of the social cash transfer (SCT) scheme for poor and vulnerable households in Malawi found that the extra cash enabled even the most poverty stricken families to invest in agricultural tools and livestock (Covarrubias et al., 2012). Another study of the same SCT programme by Boone et al. (2013), also found that the beneficiary households had invested more in agriculture and noted an occupation shift from casual labour to agriculture. These studies suggest that direct cash transfer programmes, conditional or unconditional, may help farming families, especially the smallholder families, to overcome credit and liquidity constraints and increase investments in productive activities and assets. The CCT scheme, we study, is operational in Bihar—a state where almost 90 per cent of the farmers are smallholders. These farmers are often financially constrained and even more so in drought years. Our findings on the ability of this 0.3 billion USD diesel subsidy scheme to mitigate the impact of drought on crop production adds to the growing literature on the impact of cash 3 transfers in productive investments in agriculture. Ours is the first study to evaluate the impact of a CCT programme meant specially to increase the resilience of agriculture to droughts. The second strand, this study contributes to, is the literature on adaptation policies to mitigate the impact of adverse climate realizations on crop production. Increasing subsidy on fuels (diesel or electricityiii), to reduce the cost of irrigation in drought years is a popular policy for drought proofing in South Asia. Besides government of Bihar, many other state governments in India, the federal government of India, and governments of Bangladesh and Nepal have used or seriously considered using this policyiv. However, the effectiveness of such subsidies in drought proofing agriculture remains largely unstudied. We believe that our study in Bihar—a poor state with predominantly small farmers who face high cost of irrigation—can offer useful lessons for other parts of India and other smallholder agrarian economies in Asia and Africa that face similar challenges from unpredictable weather, have similarly high levels of dependence on agriculture, and poor state capacity to help smallholders in adverse conditions. The rest of the paper is organised as follows. Section 2 describes primary and secondary data used in the paper. We briefly present suggestive evidence of the impact of drought on area and yield of kharif paddy in Bihar in recent years in Section 3.1. Sections 3.2 introduces the diesel subsidy scheme and section 3.3 presents our assessment of effectiveness of this scheme in mitigating the impact of drought. We report some of the major shortcomings in the implementation of the scheme in section 3.4 using data from our survey of 240 farmers in Nalanda district of Bihar. Section 4 presents our conclusions and policy recommendations. 2. Data We use both primary and secondary data to understand the impact and the functioning of the diesel subsidy scheme in Bihar. We use district level data on rainfall in monsoon months (June to September) from the Indian Meteorological Department (IMD) and crop area and crop yield data published by the Ministry of Agriculture, Government of Bihar to assess the impact of drought on area and yield of paddy in Bihar. Following IMD, we classify a district as drought affected if the total rainfall in a given monsoon season (June to September) is 80 per cent or below its long term mean. We collected district level data on allocation and uptake of diesel subsidy in different years in Bihar from the unpublished records of government of Bihar. We use this data in combination with published data on number of pumping sets (from the minor irrigation census of India) in each district and other agricultural data like net sown area, crop yields and total value of crop output to identify various factors that drive the large inter-district variation in use of diesel subsidy. Published secondary data on area and yield of paddy by 4 district in combination with rainfall data allows us to assess the effectiveness of diesel subsidy in reducing the impact of drought. Finally, we supplement the analyses based on secondary data with our findings on the functioning of the diesel subsidy scheme from a primary survey of 240 farmers in 16 villages of Nalanda district in Bihar.