ON the face of it, the package of incentives announced by the prime minister for small farmers is a welcome development.

The agricultural sector has been suffering from stagnating prices of produce amidst the rising costs of inputs.

Farmers’ incomes have been squeezed in recent years, which urban consumers have experienced — and enjoyed — in the form of low-cost food and industrial raw material. But a closer look reveals that the package may not add up to what it pledges.

Also read: PM unveils Rs341bn package for farmers

More than half of the Rs341bn promised under the package is in the form of agricultural loans, which only marginally qualify as an incentive considering the difficulties that small farmers have in securing access to bank credit.

The package does try to enhance farmers’ access to credit through various guarantees and by bearing the cost of loan insurance, but the impact of these is likely to be small.

The promised reduction in fertiliser prices is already a part of the budget, but whatever declines are eventually achieved, the main problem of fertiliser distribution will still remain unaddressed, resulting in the benefit passing to large landowners with political connections instead of the small farmers.

Cash support for small cultivators of rice and cotton is indeed welcome, although once again provided the targeting of this can be effective.

Moreover, the coordination with provincial governments to implement some of the provisions of the package is likely to prove challenging.

The subsidy on solar tube wells is promising, and any effort to advance the adoption of solar power ought to be welcomed — but that scheme, which totals Rs14.5bn, is also part of the budget.

It has been rightfully pointed out in some of the commentary on the package that many of the initiatives announced under it are already in place in the budget and should not be considered part of any new offering.

The subsidy on electricity tariffs for tube wells ought to have been avoided since the latter are becoming a rigid subsidy item in the overall scheme of power tariffs in the country. It is also worth asking why the government is announcing such a large measure well into the fiscal year.

The timing suggests political motives, which by itself may not necessarily be seen as negative. But it still strengthens the suspicion that our economic policy is far more ad hoc and hostage to political compulsions than the government would care to admit.

Published in Dawn, September 17th, 2015

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