| SPECIAL: Experts speak on Union Budget 2008-09 |
Jayati Ghosh, Professor, Centre for Economic Studies and Planning, Jawaharlal Nehru University Arun Kumar, Professor, Centre for Economic Studies and Planning, Jawaharlal Nehru University Yoginder K. Alagh, former Union minister for Power, Planning and Science P K Joshi, Director, National Centre for Agricultural Economics and Policy Research Mohan Guruswamy, Chairperson, Centre for Policy Alternatives
Surinder Sud, Business Standard M.S Swaminathan, Former Chairman, National Commission for Farmers and Chairperson, M. S Swaminathan Research Foundation N.C. Saxena, Former Secretary, Planning CommissionJayati Ghosh -
Budget 2007-08: Will farmers really benefit?
There was much expectation that this Budget would finally do something for Indian farmers, who have continued to suffer from the agrarian crisis in recent years despite rising world prices of agricultural goods. Indeed, this was the last chance for the UPA government to show that it stands by the National Common Minimum Programme (NCMP) commitment to reverse the trend of declining net incomes from cultivation and provide some relief to farmers.
These expectations were strengthened by the rumours that a debt waiver package for farmers would be announced in the Budget speech. In fact, Mr. Chidambaram did announce such a package, with much fanfare and declarations of concern for the plight of farmers. But while it was presented by him as a “momentous decision” that would benefit about 30 million small and marginal farmers and 10 million other farmers, the actual impact of this scheme may be rather different. It may turn out not to have any real beneficial effects for the areas and cultivators that are the worst affected by agrarian distress at present.
The proposed loan waiver and debt relief package provides for complete write-off of all outstanding debt held on December 31, 2007 to scheduled commercial banks and co-operative societies, of small and marginal farmers, that is those holding less than 2 hectares of land. For all other farmers, there will be a one-time settlement for the outstanding debt, whereby 25 per cent will be written off if the farmer repays 75 per cent.
This package therefore has a number of important exclusions. First, it excludes from full benefits all the farmers on dryland and poor quality land who hold more than 2 hectares, even though they are among the worst affected from the agrarian crisis. Thus, most of the distressed farmers of the Vidharbha region of Maharashtra or Rayalseema in Andhra Pradesh or South Karnataka, will not get the debt relief. In fact, they will probably also not even benefit from the one-time settlement, since if they could repay 75 per cent of the outstanding loan they would not be in distress in the first place!
Second, this package excludes the majority of farmers who have taken debt from private sources, since there has been no attempt to deal with the private outstanding debt. Yet private debt accounts for more than two-thirds of total rural debt, and is especially high among small tenants, women farmers and those cultivators who do not have land titles in their own names, who are already among the most disadvantaged agriculturalists. Therefore the real elements of the agricultural debt crisis are simply not addressed by this package.
If the central government were really serious about providing debt relief to troubled farmers, it should have established a Debt Relief Commission, along the lines of that which has recently been established by the state government of Kerala. This would identify the pockets and categories of severe agrarian distress and provide relief accordingly, including to those holding private debt by refinancing the moneylenders. Of course, this would necessarily mean that the central government make available real finance for this purpose, instead of the book transfer between government and banks that is currently being used to finance the proposed scheme.
It should be noted that currently the amount of unpaid loans of small and marginal farmers currently held by the scheduled commercial banks is estimated to be around 20,500 crore. This is around the same amount that is routinely written off every year as bad debts of the banks, mostly to industrialists. So what is being presented as a huge once-for-all gift to Indian farmers is something that is regularly provided to industry without any fuss.
Also, in all the publicity being accorded to this debt relief package, what is being ignored is that this Budget has almost nothing else that would make cultivation a viable or profitable activity once again. There is no budgetary allocation for significant increases in agricultural extension activity, or input provision, or price stabilisation schemes that would protect farmers from the price volatility that has made cultivation so risky. There is also no attempt to expand and improve the crop insurance scheme is ways that would make it genuinely useful to farmers. Total Central Plan spending on agriculture and allied activities is projected to increase by only Rs. 1530 crore, and total irrigation spending is actually to fall to a paltry Rs. 414 crore.
Given all this, it is really surprising to see that this is being presented by the Government as a “farmer-friendly Budget”. Either the government has been misled by its own propaganda, or it cynically believes that it does not matter how farmers actually fare, as long as they can be convinced that the government cares about them.
Arun Kumar -
Union Budget 2008-09: A Bag of Tricks to Get the Vote
The Union Budget 2008-09 has been greeted in the Media as an election budget, a farmer’s budget and a common man’s budget. This has strengthened expectation that the Congress party may announce elections in the coming months and cash in on the favourable popular sentiment created by the budget.
PLEASE ALL BUDGET
It goes without saying that a budget that plans to spend Rs. 7,50,884 crores (roughly 14% of GDP at current prices) has the potential to give to all sections of the population. The FM has not been found wanting in this and has announced schemes for all conceivable sections, like, the dalits, minorities, women, children, the aged, small scale and cottage sector and above all the farmers. The FM announced expenditures from a few crores to a few thousand crores as if they were equally important. No doubt some of the smaller expenditures announced are politically significant because of the constituency being addressed. One may then ask should these items not have had more allocations? Alternatively, should each of the constituencies now measure their importance to the ruling group by the share of expenditures allotted to them?
There are also constituencies that have got much without any fuss or mention. These are the favourites of the government, like, the rich and the corporate sector. The tax expenditures to the corporate sector have gone up by Rs. 39,000 crore (p. 58, Revenue Budget), without even a mention in the speech. While not changing the structure of corporate taxation means not giving further concessions, it also implies not tampering with the massive subsidies given to this sector which now will amount to Rs. 2,78,000 crore. In contrast, the direct subsidies to the poor, like, on food, employment guarantee scheme and housing will not amount to Rs. 50,000 crores. The disparity is glaring considering that the subsidy to the corporate sector will benefit about 1% of the population while the subsidy to the poor is shared by about 50% of the population. Continuing with the SEZ policy and not announcing any changes in it is also continuing the massive concessions granted to the corporate sector.
DEBT WAIVER AND WRITE OFF
The biggest concession and the maximum publicity has gone to the debt waiver and relief scheme for the farmers. The sum involved is estimated to be Rs 60,000 crores. It is no doubt true that in semi arid and arid areas the definition of small and marginal farmer ought to be different from that in the irrigated areas. Further, it is also true that loans from private parties which form a major component of the problem is not being tackled. In spite of these two factors, if the amount of relief announced reaches the farmers, it will make a positive impact on their lives.
Question that is being asked is where is this money coming from? It is not shown in the budget. Is it because it would worsen the fiscal and possibly the revenue deficits? But how can sums be allotted without a mention in the budget documents or is this going to be a pure loss to the banks involved? According to one Ministry official, the amount is to be written off over many years as the loans fall due and not all at once. If this is true, then why has the FM written that “The implementation of the …. scheme will be completed by June 30, 2008” (FM’s speech p. 14)?
Several issues arise in this context. What does implementation mean? Further, if the loan was overdue on December 31, 2007 and remained unpaid until February 29, 2008 then the FM says there would “be a complete waiver” of the loan. It seems that the government would take over the liability of repaying the loan and the farmer would be free of repayment obligation. But then these sums would have to be mentioned in the budget in one form or the other. Since the largest chunk of the repayment is likely to be in the first year itself, this should have been reflected in the budget and this sum should have been mentioned in the FM’s statement.
Is the FM taking the public and the Parliament for a ride? If the waiver is to be completed over several years then why announce that it would be completed in the next 4 months. If it is not to be funded through the budget then why wait to announce it as a part of the budget and why not do it earlier. Has it only suddenly become known that the farmers are facing a crisis? When the PM announced the package for farmers in Vidarbha and talked of it some time back, debt waiver could have also been announced. Why let more people die and then announce the package of debt waiver just when the elections are around the corner? Does it display callousness that the scheme is an election related one and not one born out of concern for the farmers? No wonder the public hardly trusts politicians.
The FM does not tire quoting Saint Tiruvalluvar. This time, the quote he has used is “Generous grants, compassion, righteous rule and succour to the downtrodden … are the hallmarks of good governance.” (p. 30) Is the FM’s generosity linked to the elections or has good governance started only in this election year? Does the FM ever think what would the Saint have said of his overall lack of concern for the downtrodden and his overtly pro corporate sector stance in life. Or this is perhaps one more window dressing for his constituency.
NON-TRANSPARENCIES
The moot point remains, where is the money for the debt waiver scheme going to come from? Even if bonds (like, the Petroleum sector bonds) are given to the Banks in lieu of the losses they suffer in writing off of the loans, this should be reflected as borrowings. However, the borrowings are projected to fall next year by Rs. 13,000 crores. It is unlikely that this would be possible after taking into account the borrowing requirements for the debt scheme. Since it is a subsidy to the farmers via the banks, this item should actually be accounted for in the Revenue non-Plan account but that head shows little increase in allocation after taking into account the increase in the interest burden by Rs. 18,000 crores. The FM is not being transparent in reflecting debt waiver in the budget. Similar non-transparency is visible in other items also.
For instance, take the statement on p. 29, “My tax proposals on direct taxes are revenue neutral.” However, before that para he has talked of reduction of taxes (like, Income tax and BCTT) on various items and the only item of increase in tax is capital gains. Then how can revenue be neutral? Where would the revenue increase to compensate for the fall? Here the reference is only to the increase in revenue due to policy changes and not due to a rise in the national income and the consequent increase in revenue. If the latter were to be true then neutrality should have meant no rise in the revenue but the budget shows a huge rise of Rs 60,000 crores under this head. The FM should have mentioned the likely loss of revenue and then said he hopes it would be more than made up by other factors. Given that most of this tax is paid by the top 1% in the income ladder, perhaps the FM did not wish to draw attention to how much concession he was giving to this section.
Another area of non-transparency is visible on p. 11, when the FM mentions Investment in Agriculture. He is suggesting an increase in capital formation in agriculture from 10.2 to 12.5% between 2003/04 and 2006/07. The trick is that this is an increase based on calculation as a per cent of GDP in agriculture and not GDP. Since contribution of agriculture to GDP is falling the FM is projecting a marginal rise in a falling share. The implication is that as a fraction of the GDP this would have hardly risen. Further, since the share of overall investment has risen sharply in this period, agricultural investment as a share of total investment has fallen sharply. This is indeed a cause of worry and the underlying cause of the distress in agriculture. It is also the cause of inadequate employment generation in this sector and the cause of distress amongst rural youth. This is also the reason for mass migration from rural to urban areas and the growing distress in urban areas.
The decline in the share of investment in agriculture also suggests that debt write off will only give temporary respite to the farmers. It is the marginalization of agriculture that is at the root of its problems. Country’s progress is not seen to depend on the progress of this sector so it is industry and services that are receiving the lion’s share of the nation’s resources. The figures given by the FM imply that agriculture is receiving only about 1% of the total investment in the economy. Investment per person in agriculture is 1/1000 of that in modern industry and services. This is the cause not only of the distress in agriculture but also of the growing disparity between rural-urban, agriculture- non agriculture and backward and forward states.
FAULTY ASSUMPTIONS IN THE BUDGET
Another aspect of the lack of transparency is whether the assumptions underlying the budget are indeed correct. The budget is drawn up on the assumption that the real rate of growth would be 8.6% and the rate of inflation would be 4.4% giving a nominal growth rate of 13%. Given the slow down in the Indian economy due to reasons of business cycle and due to the slow down in the world economy following recessionary conditions in the USA, these assumptions are unlikely to hold. The effects have been visible over the last 6 months with a decline in the rate of growth of consumer durables, infrastructure and exports.
The situation is reminiscent the US situation late last year when it was being said that there was no problem for the US economy but now Ben Bernanky (Chief of the US Central Bank) has admitted a huge problem and a slow down. A recession may have already set in. Economic managers are known to not admit problems and keep up a brave front till it is a bit too late. Is our FM also doing the same? One only needs to look back to 2002-03 to realize that the economy was averaging a growth rate of 5% for 4 years before that. Thus, why would it be surprising if the economy again slows down to that earlier level?
The rate of Investment and Saving that have increased in the last 6 years to about 35% have done so on the back of the massive disparities that are being created in the economy and the massive profitability that businesses have been allowed. As the economy slows down and the profit levels fall, the rate of investment and the rate of savings can again fall and this would signal a fall in the rates of growth. Hence projecting a marginal fall in the rate of growth is likely to prove to be incorrect.
Prices are supposed to be rising at about 4 to 5% per annum. However, the services sector whose share in the economy is now about 60% is not represented in the inflation index, so that the index is not representative of the price rise. The rise in rents, school fees, medical expenses, cost of financial services, etc. are not represented in the present inflation index. A Committee was set up to go into the issue of under representation of the services sector in the inflation index but its report has not yet come. Is it that the government finds it convenient to delay this report so that it can keep claiming a low rate of inflation? After the elections, whichever government comes can face the music.
That the government uses incorrect assumptions in drawing the budget is evident from the revised figures of the previous year. Plan size was claimed to have been stepped up by 30% but there is a short fall of Rs 28,000 crores or about 11% so that the actual increase is only 19%. But the government knows that the public memory is short and no one will think about it later. The government can then claim a lot like, a massive step up in Plan size. Further this step up was to be financed through a very high increase in IEBR to be garnered from the public sector. This too has turned out to be short by Rs. 21,400 crores or by about 20%. In this budget again the government is claiming a step up of Plan by about 28% and IEBR by 36%. How realistic is this? Or, is it another ploy to claim a lot?
CONCLUSION
The government has lost another chance of putting the economy (while it was still growing fast) on a more broad based growth path taking care of the poor. It could have also tried to use resources to ward off the impending economic problems due to the global slow down. But for political reasons it neither wishes to admit any problems nor displease its real constituency, the corporate sector so as to create a euphoria to come back to power.
Actually, given the situation of the poor, a lot more needs to be done but the government is not even able to fulfill its own expenditure targets. For instance we are far from the goal of 6% of GDP on education. We are not close to achieving at least 3% of GDP on health. Expenditures on NREGA are hardly commensurate with the need to spend about Rs 25-40,000 crores. This year rather than garner more resources for substantially increasing help to the marginalized sections, the government continues to give up resources by giving (or continuing) tax concessions to the well off sections.
The problem is that the poor who live at the margins are likely to suffer more from any slow down and recession than the rich. Thus, increase in social sector expenditures; employment generation, etc. should have been sharply stepped up. For the sake of votes, noise is being made to show that the government is with the poor. It is not clear how much would actually be done and how much would be achieved given the massive corruption all round. How much and for how long can the public be fooled? What if it wakes up to the reality of the last 4 years? Not only should we ask when would the public wake up but when would the ruling party wake up?
source:The Mainstream
Yoginder K. Alagh,
Find the links
There is a lot for agriculture in the budget. The problem, if at all, is that expectations were higher. To begin with, the Economic Survey, superbly crafted by Arvind Virmani in a framework of macro theory and policy rule structures, raised expectations for agriculture also. As it has always been argued, a lot of the salvation for agriculture lies outside the sector and in that sense both the Survey’s agriculture chapter and the budget followed the time honoured path, including that red rag to the economist, the loan waiver.
The fact that India is urbanising faster than we think, diversified food patterns reach an inflection point of explosive growth when we reach our per capita income levels in PPP terms (US $3000), globalisation is both threat and opportunity and that the new technologies in Bt, water saving and processing all have explosive growth potential, escape the attention they need in building an alternative framework. The reduction in direct and indirect taxes would increase the demand for high value agriculture products. The new look Survey tantalises with its state of the art discussion of macro relations, policy possibilities and threats. The opportunities this opens up for better policy are only dimly realised by the media at present.
The Survey says consumption patterns are changing. It notes that the agricultural work force is 52 per cent, not 60 or 70 as popularly believed. In fact, this also includes a share of six per cent for dairy and poultry, and so crop production is 45 per cent or so. It talks of great opportunities in rural power if we franchise the power tower, education, training, rural health and so on. If the links with the rest of the economy are capitalised, the sector can move much faster. In some sense, a lot of this is there in the budget. Those who have the vision will put it all together. But this is a continental country and we need it all to happen as a matter of course.
The more interesting aspects of the budget are the steps outside the crop production sector, where, in fact, the loan waiver could at least have been differently designed. The emphasis on water is well taken, as in the doubling of outlays in the Accelerated Irrigation Benefits Programme (AIBP), the National Irrigation Projects (the Irrigation Water Resources Finance Corporation) and the management and repair of water bodies. The Eleventh Plan details a new-look watershed programme, with explicit rules of community-based organisations, facilitating agencies, a revamped organisational structure of accountability for rainfed regions and the budget provides for it. This emerged from the working group we chaired for rainfed regions, but the watershed plus part of value-added processing is not there. The farmer demands higher incomes now and the old-style programme has to be redesigned in watershed plus to meet those needs. Also, we had suggested a special programme for 100 distressed ground water districts, which introduced a component in which a farmer can introduce recharging steps in his private field also, since aquifers don’t respect property lines but go by geophysical characteristics. The FM had announced this last year but I am told it is in a bureaucratic stranglehold. I wish we had heard something operational on the agro climatic requirement in the thousands of crores of the Rashtriya Krushi Vikas Yojana, for otherwise that money can go down the drain.
Frankly speaking, the more interesting ideas for agriculture in the budget are in the education, health and social security programme. The Rs 30,000 insurance scheme for unorganised workers, many in the agricultural sector, the 24x7 primary health centres, the schools and colleges in rural areas, particularly for poor children and girls, have great possibilities. Also, the knowledge networks, if scaled to village needs and implemented in a manner that the villages can maintain them, with models already available, and the Navyodaya Schools, a Rajiv Gandhi idea sadly given up later, can all play a role. I also believe that the world class mission mode skill development corporation to realise the demographic dividend and the moneys for cluster development, can be integrated with a vision of diversified rural development in which alone Indian agriculture will prosper.
The FM did well to announce that the fertiliser pricing reform will not let consumption go down. The blow of the loan mela was coming, but it would have been softened if the financing of the waiver was known for, after all, the banker is an economic animal and the last time around it took nine years to repay his losses and in the meantime he starved the farmer of credit. The FM says it won’t happen, but so did his predecessors. We have an innovative scheme for this but that is another article.
P K Joshi -
Mirage Bonanza for Agriculture
The 2008-09 budget was presented in a scenario of growing distress among farmers, stagnating agricultural growth and rising food prices. To alleviate distress, the Finance Minister waved-off agricultural loans in one stroke as there was considerable pressure on him from several quarters and lobbies. The argument in favor of such a provision was that the majority of farmers, who committed suicides could not repay their loans. This bonanza will undoubtedly give some relief to roughly 35 percent of small and marginal farmers and nearly 50 percent of large farmers; largely confined in favorable environment.
Those who are located in underprivileged and marginal areas (especially rainfed and backward) are often deprived of credit from the formal banking sector, such as commercial banks, cooperatives and regional rural banks, will not gain anything out of it. Such farmers largely rely on village moneylenders, traders and input dealers. On the other side, the honest farmers who repaid loans even at the cost of their many pressing needs will also be disappointed. Such a policy may also induce indiscipline in the financial sector. Undoubtedly, farmers need relief package to augment their income and empower them to repay their credit but the mode could have been different. Therefore, the real question is that how such a policy decision will trigger investment and stimulate agricultural growth.
The loan waving is a temporary relief to the farmers. Instead, the government should have considered that such a situation does not arise in future. For that the foremost requirement is to strengthen agricultural insurance sector and widen its scope with large coverage. At present it is in infancy stage, and less than 10 percent farmers are covered under present schemes. To mitigate production risk, all bank loans and crop failure could be insured. This requires development of agri-insurance products, meteorological laboratories in a cluster of 4-5 villages and institutional arrangements for their effective governance. Very little and a routine form of allocation has been made for insurance sector which deserve a large chunk to prevent distress among farmers. Until agricultural insurance is effectively operationalized, a fund could have been constituted to compensate farmers adversely affected as a result of droughts and floods.
To accelerate agriculture, there is nothing significant in the budget. There is a dismal performance of agriculture in a rapidly growing economy. Agricultural growth remained a low of 2.6 percent during 2007-08, and 2.5 percent in both IX and X Five Year Plan periods despite setting targets for 4 percent. Budget provides some allocation in irrigation, rainfed areas, horticulture mission, soil testing, and institutional excellence, which is roughly Rs 25 thousand crores; much lower than problems and opportunities prevailing in agricultural sector. All these areas deserve much higher allocation than budgeted. It appears that government is relying to boost agricultural growth through Rastriya Krishi Vikas Yojana (RKVY) and National Food Security Mission (NFSM).
The success of the RKVY completely rely on state governments in developing programs to trigger growth, and the allocation to NFSM is so insignificant to accomplish 4 percent growth rate. The budget could have focused on areas, which stimulate investment, trigger growth and increase farm incomes. Apparently, drivers of growth are technology, input availability and their effective delivery, roads and markets, which received very little attention. It is obvious that all these areas have a medium to long gestation period and their benefits are not reflected immediately. One welcoming feature of the budget is exemption to seedling and sapling production out of income tax purview. This will definitely benefit specially horticulture sector.
Agriculture deserves special attention and needs massive public investment along with reforms in delivery mechanism to stimulate private investment.
Mohan Guruswamy, Chairperson, Centre for Policy Alternatives
"The loan waiver provision in the budget favours very few farmers. Seventy per cent of the farmers who own less than one hectare of land do not opt for commercial credit. These farmers reside in the dryland areas and would be bypassed due to the land size holding being very small. This provision also sets a very bad precedent for the business of commercial credit. The farmers who have taken loans would be encouraged not to pay back. Also, the bank managers would be happy, as then they do not have to run around collecting loans. What is required from this budget is the need to make capital investments in minor irrigation and small irrigation with decentralization as the basis. The budget offers very little in terms of support to the reasons for distress in agriculture."
Surinder Sud, Business Standard
"The waiver to the farmers’ loans does not solve the problems of the large section of farmers who are in distress. The bank loans availed are largely by the big farmers who can withstand risks to crop production. The small farmers who have availed loans usually supplement the bank loans with lending from private sources, which forms a larger part of the loan. This partial respite would still keep the small and marginal farmers in debt. This provision in the budget poses threat to the credit culture in the economy. The section of farmers who repay the loan (which forms a large number) would not have any incentives to repay the loans. Banks would find it difficult in future in dealing with agricultural credit without swelling their non-productive assets."
M.S Swaminathan -
Looking beyond Farmers’ Suicides and Loan Waivers
Finance Minister P. Chidambaram’s Budget 2008-09 has aroused widespread interest in the methods of saving our small and marginal farming families from indebtedness and acute economic distress, which lead to occasional suicides. The steps proposed in the Budget will give relief to nearly four crore farmers, at an estimated outlay of Rs 60,000 crores. As stressed by Mr Chidambaram, this is a major step in recognising the indebtedness of the country to farm families who, through their toil in the sun and rain, are safeguarding national food security and sovereignty. The question arises as to whether this step will mark the end of the farmers’ dependence on moneylenders and traders for their credit needs. Some of the following issues need consideration.
First, the definition of small and marginal farmers has to be different for irrigated and dry farming areas. The present definition classifies marginal farmers as those owning up to one hectare and small farmers as those owning one-to-two hectares. Farmers cultivating crops in rainfed, arid, and semi-arid areas may own four-to-five hectares but their income is uncertain and their agricultural destiny is bound closely to the behaviour of the monsoon. A large number of farming families affected by the agrarian crisis in Vidharbha fall under this category. They will not be eligible for debt waiver and debt relief under the present scheme.
A second problem relates to the source from which loans have been taken. The programme announced in the Budget covers farmers who have taken loans from scheduled commercial banks, regional rural banks, and cooperative credit institutions. It does not cover farmers indebted to moneylenders and traders. According to the National Sample Survey Organisation (NSSO), 48.6 per cent of the farm households surveyed were indebted; of these 61 per cent had operational holdings below one hectare. Of the total outstanding debt, 41.6 per cent was taken for purposes other than farm related activities, such as healthcare and domestic needs; 57.7 per cent of the outstanding amount was sourced from institutional channels and 42.3 per cent from moneylenders, traders, relatives, and friends.
It has been estimated that in 2003, non-institutional debt accounted for Rs 48,000 crores; and out of this, Rs 18,000 crores was at an interest of 30 per cent per annum or more. (NSSO 59th Round cited by the Economic Survey 2007-08) The Expert Group on Agriculture Indebtedness, chaired by Professor R. Radhakrishna, has recommended, in its report of July 2007, the inclusion of the financially excluded, particularly the small borrower households, and the adoption of risk-mitigating measures for agriculture. The concept of financial inclusion is in its early stages of operationalisation.
Loan waiver is the price we have to pay for the neglect of rural India during the past several decades, as reflected in a gradual decline in investment in key sectors like irrigation, post-harvest technology (even today, farmers dry the harvested paddy on roads), market, and communication. The four crore farmers who are to be relieved of their debt burden before the end of June 2008 will become eligible once again for institutional credit for their cultivation expenses during kharif 2008. The challenge now is to prevent them from getting into the debt trap again.
For this purpose, both Central and State governments should set up immediately an Indebted Farmers’ Support Consortium at the district level. This should comprise farm scientists, panchayati raj leaders, input supply agencies, representatives of relevant government departments and financial institutions, rural and women’s universities and home science colleges, private sector and media representatives, and others relevant to assisting the farmers relieved of their past debt in improving the productivity and profitability of their farms in an environmentally sustainable manner. This is essential for enabling them to have a higher marketable surplus and thereby more cash income. The smaller the farm, the greater is the need for marketable surplus to avoid indebtedness.
Such an Indebted Farmers’ Support Consortium should get the four crore farmers the benefits of all the government schemes such as the Rashtriya Krishi Vikas Yojana, the National Food Security Mission, the Accelerated Irrigation Benefit Programme, the National Horticulture Mission, Rural Godown and Warehousing Schemes, and the National Rural Health Mission. If this is done, every farm family released from the debt trap should be able to produce at least an additional half tonne per hectare of foodgrains or other farm produce. This should help increase food production by about 20 million tones during 2008-10. At a time when global and national foodstocks are dwindling and prices are rising, this will be an extremely timely gain for our national food and nutrition security system and for the control of inflation. We should ensure that the outcome of debt waiver is enhanced farmers’ income and production.
The prevailing gap between potential and actual yields in the crops of rainfed areas such as jowar, bajra, millets, pulses, and oilseeds is over 200 per cent even with the technologies on the shelf. The restarting of the agricultural career of four crore resource-poor farmers through loan waiver could mark a new dawn in both agrarian prosperity and national food sovereignty—provided such farmers are supported with synergetic packages of technology, services, marketing infrastructure, and public policies related to input and output pricing. The Commission for Agricultural Costs and Prices recommends Minimum Support Prices (MSP) for 24 crops. Unfortunately, the MSP is generally available only for wheat and rice. State governments in partnership with financial institutions and the private sector should set up effective Market Intervention Funds, to help small and marginal farmers avoid selling their produce at the time of harvest at below-MSP prices.
Ultimately, it is only opportunities for assured and remunerative marketing that can help to end agrarian despair and distress. We are now importing without duty large quantities of pulses and oilseeds. If helped appropriately, the four crore farmers will produce them at lower cost. Attention to small farmer-oriented marketing is essential, if loan waiver is not to become a recurring event leading to the destruction of the credit system. This is why MSP should be implemented for all the 24 crops, particularly the crops of dry farming areas. Remunerative price for farm produce is the single most effective step to make loan waiver history.
As mentioned earlier, there are two other urgent steps needed to consolidate the gains from the loan waiver and Debt Relief Initiative. First, the definition of small and marginal farmers will have to be modified in the case of rainfed an semi-arid and arid zone farming. In my view, a small farmer in areas without assured irrigation facility should be defined as one with four hectares of land and a marginal farmer as one with two hectares. In the arid zone of Rajasthan, small and marginal farmers can be those owning eight and four hectares respectively. Such distinctions exist in the case of laws relating to the ceiling on the size of land holdings. A uniform definition covering irrigated and unirrigated areas is against the principle of equity.
A second urgent step relates to providing assistance to those who have taken loans from moneylenders and traders. The 2008 Budget does not offer a solution to releasing them also from the debt trap and thereby unleashing their farming spirit. Obviously, it will not be possible for the government to scrutinise the veracity of private deals, but steps can be taken by State governments in partnership with the private sector to help them also to restart their agricultural life. This can be done by giving them Smart Cards that will entitle them to essential inputs like seeds and fertilisers. The gram sabha can be entrusted with the task of identifying such farmers, so that there is transparency in the identification process and thereby elimination of chances for falsification and corruption. Fear of occasional misuse should not come in the way of enabling millions of resource-poor farmers, who have borrowed from informal sources, to also contribute to enhancing farm output and achieving the goal of four per cent growth in agriculture.
Thus this bold and much-needed initiative can help to launch an evergreen revolution in agriculture if steps are taken immediately to establish at the district level an Indebted Farmers’ Support Consortium; redefine the concept of small and marginal farmers in the case of dry farming and desert areas; and develop an administratively feasible approach to assisting farmers who are push-outs of the formal farm credit system to obtain essential inputs. Also, the benefits of the Rural Health Mission and all other entitlements should be extended to the farm households in distress, since borrowing for healthcare is widespread.
Finally, the pathways to our agricultural renaissance and sustainable food and nutrition security are discussed and defined in detail in the five reports of the National Commission on Farmers (2004-06) and in the National Policy for Farmers (2007). The sooner they are acted upon in a holistic manner, the greater will be the possibility of avoiding the recurrence of the era of farmers’ suicides and loan waivers. With the extension of the National Rural Employment Guarantee Scheme (NREGS) to all 596 rural districts, the demand for foodgrains will go up.
There is now widespread malnutrition and under-nutrition in the country, particularly among women and children. Nearly two-thirds of the income of the poor is spent on food and the purchasing power enhancement conferred by the NREGS would help to raise food consumption. Loan waiver and the NREGS could make the largest contribution to the eradication of under-nutrition, provided linkages are established among all relevant programmes. The present situation of having to interfere with the formal credit system should be converted into an opportunity for the elimination of endemic hunger through both higher food production and the operation of a Universal Public Distribution System.
N.C. Saxena -
Concern for the ‘Aam Admi’ – how has it been met in the Budget?
Finance Minister presented the budget for 2008-09 in an environment of growing recognition that the poor have been left behind in the mad race of high economic growth and getting rich quick. According to the Planning Commission’s Approach Paper for the XI Plan, there has been a sharp increase in unemployment (from 9.5% in 1993-94 to 15.3% in 2004-05) among the agricultural labour households. The NFHS III survey of the Ministry of Health showed that despite high economic growth of eight per cent every year, malnutrition in the age group 0 to 6 years has declined only by one percentage point in the last eight years. The prevalence of child undernutrition in India is among the highest in the world, nearly double that of Sub-Saharan Africa, with dire consequences for morbidity, mortality, productivity and economic growth. Many developing countries which are poorer than India seem to be doing much better on the social front as shown below.
| India | Bangladesh | Myanmar | Vietnam | Bhutan | ||
| Infant Mortality Rate per 1000 births | 1990 | 82 | 100 | 91 | 38 | 107 |
| 2006 | 57 | 52 | 74 | 15 | 63 | |
| Underweight children under 5 | 46 | 48 | 32 | 25 | 19 | |
| Immunized against measles | 59 | 81 | 82 | 93 | 90 | |
| Rural population with adequate sanitation | 22 | 35 | 72 | 50 | 70 | |
| Ratio of girls to boys in schools (%) | 88 | 105 | 101 | 96 | 87 | |
| Global Hunger Index | 25 | 28 | 16 | 18 | na | |
(Based on information on the World Bank, Unicef & IFPRI websites)
Social sector outlays
One of the reasons for pathetic progress on social indicators is inadequate allocation. Way back in 2004 the Common Minimum Programme of this government had announced its intention to increase the public spending on education to 6% of the GDP and on health to 2-3 percent of GDP, but there has been hardly any serious effort in the five budgets presented so far to move towards the announced targets. Overall expenditure on education and health has stagnated at about half the desired levels.
| Trends of social sector expenditure as % of GDP: (Centre and State Governments combined) |
 |
The central government may congratulate itself in increasing the outlays for social sector in the central budgets, but more than 80% of expenditure on these sectors is borne by the states, and unless they too fall in line, additional central allocations do not change the picture. Table below shows how expenditure on education and health as percentage of total expenditure has stagnated or even fallen in the states in the last eight years.
| Expenditure on education and health as % of total expenditure (all states) | ||
| Year | Education | Health |
| 2000-01 | 17.4 | 4.7 |
| 2001-02 | 16.1 | 4.4 |
| 2002-03 | 15 | 4.1 |
| 2003-04 | 12.6 | 3.5 |
| 2004-05 | 12.7 | 3.5 |
| 2005-06 | 14.2 | 3.9 |
| 06-07 (RE) | 14.2 | 4.1 |
| 07-08 (BE) | 13.9 | 4.1 |
One expected that the current budget of the UPA government would show some upward movement in allocations for the social sector, but it disappointed us and did not fulful the promises made in the CMP.
NREGA
Allocations under wage employment schemes have not only been grossly inadequate, but have actually fallen. In 2005-06, that is, before the introduction of NREGA, when each worker was being given 5 kg of foodgrain per day as part of the wages, the RE figure for wage employment works under the Ministry of Rural Development was Rs 10200 crores excluding Rs 1500 crore meant to cover the cost of food component. According to the bulletin of the Ministry of Consumer Affairs, Food and Public Distribution for the month of November 2007, offtake of foodgrains from Central Pool in 2005-06 for wage employment schemes was as follows:
| Scheme | Rice | Wheat | Total economic cost in crore Rs |
in lakh tonnes |
|||
| SGRY | 24.21 | 15.71 | 4878 |
| SGRY (spl. Component) | 7.44 | 9.82 | 2021 |
| National Food for Work Prog. | 6.59 | 4.08 | 1307 |
| Total | 38.24 | 29.61 | 8206 |
Thus the overall cost borne by the central government for running wage employment programmes in 2005-06 came to 10,200 plus 8206 = Rs 18,406 crores.
The foodgrain component of SGRY has now been vastly reduced, and there is no such component in NREGA. In 2006-07 the total foodgrain released for wage employment schemes was only 24 lakh tonnes as compared to 68 lakhs in the previous year. This has further come down to only 7.3 lakh tonnes in the current year (upto Nov 2007), and may not even reach 15 lakh tonnes by the end of the March 2008.
Converting these figures into cash would imply that the total expenditure by GOI on wage employment schemes came down from Rs 18406 crores in 2005-06 to Rs 16,117 crores in 2006-07, and close to Rs 15,000 crores in the current year.
The allocation of Rs 16,000 crores for 2008-09 even at current prices does not match what was already being spent in 2005-06 on the scheme. If inflation is taken into account the allocation for 2008-09 is less than what government spent in 2005-06 by at least 30%!
No wonder the legal guarantee of 100 days wages, according to CAG, has been fulfilled in only 3% of the cases. According to a recent press note by the Ministry of Programme Implementation and Statistics on ‘Employment and Unemployment Situation in India: 2005-06’, among the persons of age 15 years and above in the rural area, only 5 per cent got public works, 7 per cent sought but did not get public works.
Thus the introduction of NREGA has actually reduced Government's financial liability to support wage empoyment. No wonder GOI is so keen to extend NREGA throughout the country, not taking into account that about one-fourth of the districts in India (many in north-west India, Himachal, Uttarakhand NE, and Kerala) are labour scarce districts! Wage-employment programmes should not be run in these districts, where wage rate is already high and where unskilled labour comes from other regions. Such districts should be offered more funds for other programmes, including irrigation and rural infrastructure. Reckless expansion will only promote migration and fudging of documents.
Child labour
How serious are we towards eradicating child labour in the country? As per the Census 2001, the total number of economically active children in the age group of 5-14 years is 1.26 crores. As per question no 1733 answered on 05.12.2007 in the Rajya Sabha expenditure under the National Child Labour Project in 2006-07 was only Rs 121 crores, which comes to less than 30 paise per child worker per day. (ADD a sentence on latest outlays from the current budget). No wonder they prefer begging on the street than be part of the government programme!
Old age pensions
The Prime Minister had said in August 2007 that the National Old Age Pension Scheme will be extended to all the persons Below Poverty Line above the age of 65 years. A pension of Rs. 200/- per month will be provided and States will be requested to add another Rs. 200/- to this scheme. However, 12 states, including Andhra Pradesh, Bihar, Himachal Pradesh, J&K, Orissa and some NE states, are only paying only 200 Rs per month, threby implying that the state share is zero! Why couldn’t the GOI insist that the central share would be given only when states contribute at least Rs 100 per month?
Delays
One of the commitments made in the NCMP was that Government will introduce a social security scheme for unorganised workers. In the Budget speech 2007 Finance Minister announced a new scheme called 'Aam Admi Bima Yojana' (AABY), and he specifically said that it would be implemented in 2007-08 itself. However, releasing the guidelines for the Scheme a few months back, Mr. Chidambaram said the scheme would be implemented from the next financial year! Such delays are because of indifference on the part of states and archaic procedures.
From outlays to outcomes
Enhanced allocations, howsoever vital for the social sector, are not sufficient to improve India’s performance on MDGs. FM in his 2007 speech rightly said that ‘There is no dearth of schemes; there is no dearth of funds. What needs to be done is to deliver the intended outcomes.’ How is outcome delivered in the states? By falsifying records! Sachin Pilot while trying to understand how ICDS functions in the districts observed (Economic Times 11th Feb, 2008):
‘we discovered that all data of children at the centre for the past five months, weight, vaccinations, health records etc, were filled in with pencils. On probing further, I found it was done so that in case of an official inspection, the figures could be erased and “correct” data inserted to make the centre’s performance look good!’
The practice is so widely prevalent in all the states, presumably with the connivance of senior officers, that the data reaching GOI shows only 8% as the overall percentage of malnourished children in case of 0-3 years (with only one percent children severely malnourished), as against 46% reported by NFHS-3. What is equally astonishing is the fact that records show a steep decline in the percentage of malnourished children from 29 to 8%, which is totally at variance with the findings of the various NFHS surveys. By sending bogus reports the field officials are thus able to escape from any sense of accountability for reducing malnutrition.
The CAG found similar discrepancies in record management in its study of the NREGA. In 282 GPs in 21 States, dated receipt of applications for demand for work were not given, and in 343 GPs in 19 States, Employment Registers were not maintained. In the absence of recorded date of demand, the entitlement to unemployment allowance could not be easily established.
In Orissa, no budget provision was made by the State government for payment of unemployment allowance. Resultantly, in 12 test checked blocks, no unemployment allowance was paid to 5143 registered households who were not provided with employment during 2006-07 despite demanding the same. In Uttar Pradesh, in four of the six districts covered in audit, 40,587 households demanding employment were neither provided employment, nor was any unemployment allowance paid to them.
The CAG’s overall conclusion was that systems for financial management and tracking were deficient, with numerous instances of diversion and misutilisation. As against the government claim of 43 days, CAG’s finding wass that the average employment provided to each registered household was only 18 days in test-checked GPs.
It is not the size of allocations on pro-poor services alone that matters. Government of India transfers more than three and a half lakh crore Rupees every year to the states. If even half of it was to be sent to the six crore poor families directly by money order, they would receive more than 50 Rupees a day! It proves that public expenditure needs to be effectively translated into public goods and services that reach the poor for it to have an impact on poverty and social outcomes. Unfortunately different kinds of distortions can come in the way of resource allocations reaching the intended beneficiaries. There is enough evidence to show that government’s capacity to deliver has declined over the years due to rising indiscipline and a growing belief widely shared among the political and bureaucratic elite that state is an arena where public office is to be used for private ends. Weak governance, manifesting itself in poor service delivery, excessive regulation, and uncoordinated and wasteful public expenditure, is one of the key factors impinging on development and social indicators.
Rural distress & Agriculture
According to a recent press note of the National Sample Survey Organisation on consumption and employment from the 62nd survey, as many as 19 per cent of Indians in 2005-06 living in rural areas belong to households which cannot afford to spend more than Rs 12 a day per person on consumption, and in the towns and cities as many as 22 per cent belong to households where the daily per capita expenditure is less than Rs 19. Such abysmal levels of consumption are surely linked to the very low wage rates. In rural India, the average daily wage of casual labour in 2005-06 was Rs 59 for men and Rs 38 for women; in urban India the rates were Rs 81 and Rs 45, respectively – in both areas below the statutory minimum. The pattern is unrelenting in all aspects of the quality of life. In India’s villages, 50 per cent of families live in kutcha or semi-pucca homes, 74 per cent of households still use firewood for cooking and 42 per cent are forced to depend on kerosene for lighting their homes. ‘So much for life in a high-performing economy. In sum, the economy seems to be doing fine, it’s just the people that aren’t’ (EPW 11Feb 2008).
A recent UNDP survey (known as PAHELI) of Gajapati district in Orissa showed that 22% people in the district did not get two meals a day and 60% women survived only with one or two sets of clothes, and yet 36% of the families did not own a BPL or Antyodaya (AAY) card. In fact in the entire country only about half of the poor have BPL/ AAY cards, whereas 17.4% of the richest quintile have managed to get the BPL/AAY cards, as shown below.
| % of HH that possess ration card 2004/05 (NSS 61st round) | |||||
| Any card | BPL card | APL card | AAY card | ||
| Poorest | 77.3 | 44.2 | 28.2 | 4.9 | |
| Q2 | 81.6 | 40.5 | 38.4 | 2.7 | |
| Q3 | 83.3 | 40 | 41.6 | 1.8 | |
| Q4 | 84.9 | 30.5 | 52.7 | 1.7 | |
| Richest | 87.5 | 16.8 | 70.1 | 0.6 | |
The increase in rural distress is primarily because both per capita foodgrain production and agricultural production has fallen rapidly since 1996.
| Per Capital Production of Foodgrains (in kg) |
 |
According to the MTA, X Plan, within the crop sector, only fruits and vegetables, condiments and spices and drugs and narcotics continued to grow at over 2.5 per cent per annum. Excluding these, growth rate of output of remaining crops fell below 0.5 per cent per annum after 1996-97 as compared to over 3 per cent earlier. Assuming population rose by 1.7% during 1996-2005, this amounts to a decline of 1.2% per capita per annum in crop production.
According to the recent Economic Survey released by GOI, the consumption of cereals in India declined from a peak of 468 grams per capita per day in 1990-91 to 412 grams per capita per day in 2005- 06, whereas the consumption of pulses declined from 42 grams per capita per day (72 grams in 1956- 57) to 33 grams per capita per day during the same period. The decline for the bottom 50% would have been even sharper than the average.
Interventions in the budget
The UPA government has surely increased the plan allocation for agriculture several times, and introduced some new schemes but its impact on increased agricultural production or on reduced rural distress will still be marginal. As observed by Sainath, disastrous policies, woeful access to affordable credit, greedy and corrupt middlemen, and indifferent administrations are among the factors that have pushed farmers to their breaking point.
The number of rural bank branches has come down, and farmers are forced to take loans at exorbitant rates from moneylenders and suppliers of inputs. Little relief has been announced in the budget on loans from ‘informal’ sources. It may be recalled that the Radhakrishna Committee appointed by the Finance Ministry on rural indebtedness had in July 2007 suggested the creation of a “Moneylenders Debt Redemption Fund” under which banks will finance a one-time repayment of loans to moneylenders in identified districts under distress. The Finance Minister while announcing a huge loan waiver scheme for the lucky ones who obtain loans at a low interest of 8 to 12% from banks and cooperatives has given no such relief to the unfortunate farmers who obtain loans from informal sources at an exorbitant 50 to 100% rate of interest.
Controls over water
By providing farmers with electricity at flat rather than metered rates, and eventually for free, successive state governments across India let loose a chain of events with serious long-term consequences for depletion of groundwater. The successive budgets in the last four years have given many doles to farmers, but did little to control excessive mining of groundwater, leading to a situation where shallow wells that were a source of water for small farmers have gone completely dry.
| Water famine – how real? | |
|
During the summer months of April-May 2000, the Maharashtra Government was supplying drinking water through tankers in about 3000 villages, many of these had a standing and well-irrigated sugarcane crop. Thus groundwater that should have been a community resource was being monopolized by a few rich farmers, who also took advantage of easy availability of two other scarce resources – electric power and capital. The responsibility to provide drinking water was then transferred to the State. Mid term Appraisal of the 9th Plan, 2000, page 300 |
|
Flawed policy on agriculture
The policy approach to agriculture, particularly since the mid-1990s, has been to secure increased production through subsidies on inputs such as power, water and fertiliser, and by increasing the minimum support price rather than through building new capital assets in irrigation, power and rural infrastructure. This has shifted the production base from low-cost regions to high cost regions, causing an increase the cost of production, regional imbalance, and increasing the burden of storage and transport of foodgrains. The equity, efficiency, and sustainability of the current approach are questionable. The subsidies do not improve income distribution or the demand for labour. The boost in output from subsidy-stimulated use of fertiliser, pesticides and water has the potential to damage aquifers and soils – an environmentally unsustainable approach that may partly explain the rising costs and slowing growth and productivity in agriculture, notably in the Punjab and Haryana. Moreover, deteriorating State finances have meant that subsidies have, in effect i) ‘crowded-out’ public agricultural investment in roads and irrigation and expenditure on technological upgrading, ii) limited maintenance on canals and roads, and iii) contributed to the low quality of rural power. These problems are particularly severe in the poorer States. Although private investment in agriculture has grown, this has often involved macroeconomic inefficiencies (such as private investment in diesel generating sets instead of public investment in electricity supply). Public investment in agriculture has fallen dramatically since the 1980s and so has the share of agriculture in total gross capital formation. Instead of promoting low cost options that have a higher capital-output ratio, present policies have resulted in excessive use of capital on the farms, such as too many tubewells in water scarce regions.
The intensity of private capital is in fact increasing for all class of farmers, but at a faster pace in Green Revolution areas and for large farmers. Thus, fertilisers, pesticides and diesel accounted for a mere 14.9% of the total inputs in 1970–1 but 55.1% in 1994–5. For a large farmer in commercialised regions their contribution may have now become as high as 80%. But the proportion of output sold has increased at a much slower rate than the proportion of monetised inputs, including hired labour. The implication of this is a resource squeeze in agriculture. Whereas the need for resources to purchase these inputs has been increasing, the marketable surplus has been increasing at a slower rate to contribute to this, as the growth of non-farm employment has become very sluggish. It is not surprising that the repayment of loans is such a problem in Indian agriculture and has even led to suicides in some cases. A better strategy would be to concentrate on small and marginal farmers, and on eastern and rainfed areas where returns to both capital and labour are high. The need is also for better factor productivity in agriculture and for new technologies, which would be more labour intensive and would cut cash costs.
But a major question is whether substantial and equitable productivity gains in agriculture can be made there without significant improvement in the quality of governance in these States. However, Governance is a non-monetary issue and therefore not of concern to the budget!
| Increases in 2008 BE over 2007 BE | |||
| 2007 | 2008 | % increase | |
| SSA | 10671 | 13100 | 22.8 |
| MDM | 7324 | 8000 | 9.2 |
| NRHM | 9947 | 12050 | 21.1 |
| ICDS | 4761 | 6300 | 32.3 |
| ARWSP | 5850 | 6500 | 11.1 |
| TSC | 954 | 1200 | 25.8 |
| Health | 15855 | 16534 | 4.3 |
| Education | 32352 | 34400 | 6.3 |
| WCD | 5853 | 7200 | 23.0 |
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