Thousand of farmer suicides and more importantly an election year finally resulted in a so-called farmer friendly budget or as the Congress put it, an ‘Aam aadmi’ Budget. Let me at this point forewarn you that a farmer friendly budget does not necessarily mean a ‘Poor Friendly’ budget! (Something that I will delve into in my upcoming article) The loan waiver of INR 60,000 crores (taxpayer’s money) that has been allocated for the cause is an eyewash and the most unfortunate part is that the farmers in actual need will not even realize that till the time they are educated about the glaring GAPs. The following are the questions that the farmers should ask of the government before they get their hopes up:
1- Will waive off be applicable to the loans taken from the non-institutional sources? The government has proposed waive off for farmers with small and marginal holdings. However, waive off is only applicable to the loans taken from institutional sources. This is perhaps the biggest GAP that the government should not have ignored. National Sample Survey Organization has highlighted in its findings that less than 60% of the indebted farmers have availed the loan from institutional sources such as Scheduled Commercial Bank, Regional Rural Bank, and Cooperatives. The 40% plus who are mostly small and marginal farmers for whom waive off is intended, have availed such loans from money lenders and therefore are not even eligible for the benefit. Therefore, who is the government actually benefiting? The answer is majority those farmers who are capable of paying off the loans.
The worst part is that such waive off will not only fail to benefit majority of those who are in actual need, but also that it will become counter productive. Waive off will breed inefficiency amongst the farmers who can pay as they will no longer have the incentive to increase productivity as they will now believe that every fourth year before election, the party in power will replicate, if not better the offer for the farmers. Consequently, agriculture sector that currently contribute only a dismal 2.3% of the GDP, will keep growing at the sluggish rate. (If not fall)
It is basic economics, marketing (failure to reach out to the target segment) and common sense that the incentive lacks!
2- Will waive off be implemented and benefit the ‘lucky few’ in need? The government spend INR 4/- for every INR 1/- of subsidy intended for the farmer. Therefore, is the government spending INR 60,000 crores or is it actually spending INR 15,000 crores? Further, the institutional sources are not exactly farmer friendly and would derive pleasure (if not tangible monetary benefit) from harassing those in need. The proposed implementation of smart card or vouchers would be a step in the right direction.
3- Why was the Price Risk Mitigation Fund as proposed by the Radhakrishna committee ignored? The fund that was proposed to compensate the farmers in case of a price collapse was required to provide a support to the small and marginal farmers and thereby provide them a cover against their propensity to fall into the clutches of the money lenders was conveniently ignored. This is the root cause of the farmer suicides and required special attention of the government.
4- What has the government done to increase the public investment in agriculture? Mr. P Chidmabram may pat himself on the back for increasing the rate of capital formation to 12.5% (FY-08) from 10.2% (FY 03-04), but one needs to ask him the performance in the agriculture sector. The rate of capital formation in the agricultural sector has in fact dipped from 8% (performance of previous NDA government) to 6% under the UPA government.
5- What has the government done for the long run benefit of the farmers? The INR 60,000 crores, as lucrative as it sounds is only intended to address the short run problems of the farmers. The fund could have been better utilized if a part of it was also diverted in providing better inputs (seeds) and irrigation facilities to the farmers. The problem of farmer debt will only resurface after 3-4 years if the root cause was not addressed. Consolidation of land holdings is another important step that should not have been ignored so blatantly. To conclude, let me reiterate that I am not pro/anti UPA. I believe every government in power would have done the same thing. Every government will unfortunately indulge freely in its predilections. This is the kind of inertia that has burdened the economy over the last 60 plus years of Independence.
Will India see some change leaders to address these issues?
This entry was posted on Monday, March 3rd, 2008 (I migrated from blog.co.in)
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