MacroScan - Budget 2004-05 and Agriculture: A betrayal of the electoral mandate

The results of the Lok Sabha elections in May 2004 left many psephologists wondering what had gone wrong with their predictions. While they were expecting that the alliance opposed to the National Democratic Alliance would give the latter a good fight, the fall of the NDA government was unexpected to the mainstream media. Once bitten, twice shy analysts blamed the NDA's defeat to the alliance's ignoring the rural sector, neglecting investment in agriculture and immiserisation of Indian cultivators. While results make it evident that the NDA lost even in the metropolises, it is undeniable that neglect of agriculture cost the BJP and its allies dear in the recent polls.

As a consequence many hoped, quite justifiably, that the United Progressive Alliance (UPA) government will respect the popular mandate and push for more farm-friendly policies. To this effect it would not have been too much to expect the Union Budget 2004-05 to break away from the charted route and trail a new path, focusing more on agriculture and on the rural economy, where most of India's poor are still parked. The Finance Minister, P. Chidambaram, started his budget speech by acknowledging that the people have sought 'a change in the manner in which this country is run, a change in national priorities, and a change in the processes and focus of governance'. He promised to make every effort to be true to that mandate. And Chidambaram, even now, is claiming that 'the Budget for 2004-05 mostly dealt with agricultural reforms, which were neglected by the previous NDA government'. This he said while clarifying that the next year's budget will be one in which there would be comprehensive tax reforms taking into account the suggestions of the Kelkar Task Force, which will submit its report within a few days. And even then, as we shall shortly see, this year's budget has hardly anything to offer to the agricultural sector. One can just sense what more will lie in store for the cultivators in the next year's budget which, in the Finance Minister's own admission, will look to address issues other than agriculture more emphatically.

The National Common Minimum Programme had mentioned focusing on agriculture and the generation of gainful employment in agriculture as two of the key objectives of the UPA. The Finance Minister promised in his speech that agricultural investment will receive priority and will be provided with additional funds. However, as one reads between the lines, it is evident that Chidambaram's promise of reviving the agriculture is mere lip-service, and with the kind of policies he has suggested and allocations he has made for the purpose, all efforts to give agriculture the much-needed big-push are to come a cropper.

The Union Budget 2004-05 has failed to move away from the macroeconomic policy prescriptions followed by the previous NDA government and the UPA has remained glued to fiscal conservatism while drafting the budget. Chidambaram talks in his budget about doubling agricultural credit in three years time; expanding water harvesting, watershed development and minor-irrigation and micro-irrigation schemes while accelerating the completion of irrigation projects; and investing in rural infrastructure. He promises farm insurance and livestock insurance, as well as the improvement of markets for agricultural products. He outlines the promotion of agri-business as a thrust area in his budget. However, he has hardly put any money aside to specifically invest in these areas. He has not provided any additional outlay for agriculture or the allied sector. To the contrary, he has actually reduced budgeted capital expenditures on the non-plan account from Rs. 67,946 crore to Rs. 38,589 crore, which has not been matched by the increase in plan capital expenditures from Rs. 43,421 crore to Rs. 53,747 crore. It is beyond anybody's comprehension how one can step up investment in agriculture, irrigation and rural infrastructure when there is a massive drop in capital expenditure outlays. For certain schemes he proposes to implement, our Finance Minister plans to draw funds from finances available for existing schemes. For example, Chidambaram proposes to launch a pilot project in five or more districts, at least one each in the different regions of the country, to repair, renovate and restore all the water bodies that are directly linked to agriculture. Funds for these pilot projects are to be drawn from Sampoorna Grameen Rozgar Yojana (SGRY), Pradhan Mantri Grameen Jal Samvardhan Yojana (PMGJSY), Drought Prone Areas Programme (DPAP), Desert Development Programme (DDP) and Integrated Watershed Development Programme (IWDP). This means that projects so far funded by money allotted for these schemes will now be adversely affected.

It is now well-known that thousands of farmers in Andhra Pradesh, Karnataka and elsewhere have fallen into the debt-trap and many of them have committed suicide unable to pay even the interests accruing from such debt or bear the humiliation. However such suicides failed to find any mention in the Finance Minister's self-proclaimed agriculture-friendly budget. Worse, he suggested that investment in agriculture would be facilitated through credit-enabled private investment (beside public investment for which no indication was available). There is no guarantee that such credit would not lead farmers to higher indebtedness and that the inability of the debtors to repay them would not lead to more suicides. In fact, the scrapping of excise duty on tractors, coupled with easy credit might lead even those not owning plots viable for ploughing with a tractor to purchase one and cause their own miseries. No farm less than ten hectares can be profitably ploughed with a tractor. For bigger farms easy availability of tractors will reduce the need to hire agricultural labour, thereby worsening the rural employment situation.

Credit is often a part of the problem and what farmers would want to have is not so much access to credit as much as an assured income. As pointed out in an article by Devinder Sharma^[1], Ministry of Agriculture findings reveal that farm incomes have declined during the past five years. Paddy cultivators in West Bengal earned 28 per cent less in 2002-03 compared to what they were earning in 1996-97. During the same period sugarcane farmers in Uttar Pradesh and Maharashtra saw their incomes come down by 32 per cent and 40 per cent respectively. Farm income in North India went down by 10 per cent on an average during these years. And yet, Chidambaram's 'Dream Budget' fails to mention any step that might help augment farm income on India's sowing grounds.

Without government-sponsored schemes farm insurance packages are bound to be grounded even before they can take off. Given the volatility of Indian crop output, no private insurance company will be willing to float schemes for the farming community, and even if any company does so premiums are bound to be set at extremely high levels - outside the reach of the poor majority in the farming population - so as to compensate for the high risk factor involved in insuring farm output. With the government opening up the insurance sector to greater participation by foreign players, the scope for government schemes insuring farm produce appears bleaker than ever before. Entry of private players in the insurance sector will also reduce the Life Insurance Corporation of India's capacity to invest in the social sector, as now the LIC will have to compete with private insurers who will never invest in not-so-profitable sectors. In fact, Chidambaram's speech itself mentions that the LIC invests, on an average, Rs 3,000 crore per year in water-related programmes.

Ever since India opened up its agricultural sector to trade in the early 1990s, the country has seen a marked shift in the cropping pattern. Acreage under foodgrains has declined while horticulture, floriculture and cultivation of cash crops have witnessed significant increases. Noted economists like Utsa Patnaik, Madhura Swaminathan and Abhijit Sen, among others have written extensively about the adverse impact of such crop diversification on food security of the country. Despite such cautionary notes, Chidambaram has pushed for doubling India's horticultural output by 2011-12. The Finance Minister says that it is important to push for crop diversification as the country has become self-sufficient in wheat and paddy, but is deficient in other agricultural produce. Nothing however can be furthest from truth. The said self-sufficiency has perhaps been dreamt of owing to the large reserves lying with the Food Corporation of India (FCI) in recent years. But as the above-mentioned economists have explained, such rising reserves have nothing to do with higher production and consumption satiation, but with reduced offtakes owing to loss of income, hike in issue prices, and dismantling of the public distribution system. This explains the paradox between the country witnessing simultaneous burgeoning of food reserves and deaths due to starvation in different parts of the country. The Economic Survey, brought out a day before the Budget, states that cereal consumption has fallen by over a fifth in a single year, from Rs 1,58,621 crore in 2001-02 to 1,24,560 crore in 2002-03.

Even if horticultural production is increased, it is not the case that India's consumption of these products will go up. While the average output of horticultural products in the country is around 780 grams per head per day, and the nutritional norms is 90 grams per head per day, an average Indian consumes only 40 grams of these products per day. So the country is not actually deficient in production of horticultural goods, it is distribution that merits attention. In this regard, the situation is quite similar to the foodgrains paradox. Reserves mount with the FCI, but they do not reach those who are hungry.

In essence, the Union Budget 2004-05 has abided by the IMF and the World Bank's dictats for ushering in a new era of agrarian distress in the country. The move to push for crop diversification so that the developed North can enjoy a more diversified diet and sell their highly subsidized foodgrains produced by their highly inefficient farmers to us, the withdrawal of state support to the farmers and allowing private players to have a greater role in extending farm credit, all have their geneses in the structural adjustment and stabilization programmes the Fund-Bank economists have adroitly pitched for. Our honourable Finance Minister, it seems, has managed to hoodwink the pro-farmer alliance partners and play ball with the big agri-business interests.

The fear is that having failed to take the electorate's mandate seriously the UPA might have already embarked on the exit route even before the curtains for the inauguration have been raised.

1.http://www.macroscan.org/anl/jul04/anl120704new_untouchables.htm