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