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Rediff.com  » Business » The Budget's link to April Fools' Day

The Budget's link to April Fools' Day

April 05, 2007 12:35 IST

I must confess that I am writing this piece on All Fools' Day. Lest the reader ends up with a mistaken belief, at the outset, a caveat would be in order. This piece is about the budgetary allocations for the farm sector for the year 2007-08. Consequently, any reference -- explicit or otherwise -- to All Fools' Day is purely coincidental.

Being the first day of the financial year I deemed it appropriate that one should visit the allocations made in Budget 2007 on the farm sector by the Finance Minister P Chidambaram.

Readers may recall that this one has been labelled as a 'Farmer's Budget' -- even by media, analysts and economists. Packaged in brilliant English and peppered with the usual dose of Thirukural, it is imperative that the Budget is critically examined, especially with respect to the proposals relating to the farm sector.

An exercise of that order would reveal that barring a sum of Rs 22,452 crore (Rs 224.52 billion) for fertiliser subsidy (which arises due to the administered pricing mechanism of the fertilisers), there is hardly any significant allocation in the Budget for the farm sector or any policy intervention that could have a profound impact on this sector.

It would seem that the reader would have to suspend his sense of disbelief to rate this Budget as an agriculture-oriented exercise. But that is how it has been done by one and all. Strangely, the opposition political parties too seem to have reconciled to this issue. Thus, this is an attempt to sensitise the reader of all that is contained (or, all that is not contained) in the Budget, specifically relating to the farm sector.

First, the Budget proposes to fix the farm credit target at Rs 225,000 crore (Rs 2,250 billion) by March 2008. This would represent an increase of Rs 35,000 crore (Rs 350 billion) from the present estimated limit of Rs 190,000 crore (Rs 1,900 billion) in March 2007.

A close observation of this proposal would reveal that that the above fiat to the public sector banks has nothing to do with budgetary allocations. In fact, this could have been done even outside the Budget, but this has been done merely to ornament the Budget and create a fa├žade of huge allocations.

Further, it has to be noted that the farm sector contributes approximately 20% of the GDP. Other things remaining equal, farm sector must obtain 20% of the credit from the formal sector, which would be approximately Rs 5.6 lakh crore (Rs 5.6 trillion) of the Rs 28 lakh crore (Rs Rs 28 trillion) of aggregate credit by banks as at end March 2007.

But as admitted by the finance minister, the credit to the farm sector was less than Rs 1.9 lakh crore (Rs 1.9 trillion) -- resulting in a credit shortfall by the formal sector of approximately Rs 2.5 lakh crore (Rs 2.5 trillion): this is merely an estimate and actual figures may vary, but the point to be noted here is that there is a significant shortfall.

Needless to emphasise that farmers thus approach the informal sector for their credit requirements and end up paying usurious rates of interest. While credit expansion planned through the banks is indeed impressive, one must note that the increase would in no way address the structural issue of extreme credit shortfall faced by the farm sector.

The increase of credit by public sector banks to the farm sector needs to show significant increase.

And for the purpose of dealing with the indebtedness of farmers the government had appointed a committee under Dr R Radhakrishna to examine all aspects of agricultural indebtedness.

The discussions are in public domain for some time now as it is conducting wide-ranging consultations with various stakeholders. The finance minister asserts that the government will act on the report as soon as it is received.

This is ostensibly aimed at having a salutary effect on the farmers who are under tremendous fiscal stress and committing suicides across the country. This is akin to applying pain balm when chemotherapy is warranted.

Second, a significant plan proposed in the Budget is a special plan structured for over a period of three years in 31 especially distressed districts in four States of the country involving a total amount of Rs 16,979 crore (Rs 169.79 billion).

Of this, about Rs 12,400 crore (Rs 124 billion) is for water-related schemes. The allocation for this scheme is a mere Rs 153 crore (Rs 1.53 billion).

What begins as a scheme for Rs 16,979 crore for 3 years in 31 districts, results in an allocation, which is less than 1% of the total project cost. This is another ornamental piece in the Budget, ostensibly to address the water-related physical stress in the farm sector.

Third, the mission on pulses is another issue that needs some attention. In 1947, our per capita consumption of pulses was approximately 60 gm per day. Years of neglect of this sector have meant that the per capita pulses consumption today has halved to less than 30 gm per day. Even this is achieved through substantial imports. This is attributed to the non-availability of seeds and quality of certified seeds leading to food insecurity and attendant malnutrition.

To address this deficiency, the Budget proposes to invite both public as well as private sector companies to submit plans to scale up the production of seeds.

Further, the government is expected to fund the expansion of Indian Institute of Pulses Research, Kanpur, and offer the other producers a capital grant or concessional financing in order to double the production of certified seeds within a period of three years.

It has to be noted that there is no mention of the allocation in the Budget for this programme in the Budget. Again, a plan that aims at something in the future and crucially without budgetary allocations -- packaged in excellent English and sold to a gullible, unsuspecting and uncritical audience.

Fourth, the plan of the government to put in place financial mechanisms for coffee, rubber, spices, cashew as well as coconut in the plantation sector is a promise without any noticeable allocations.

Fifth, through the increased outlay in the Accelerated Irrigation Benefit Programme, the Budget expects to complete 35 projects and bring in additional irrigation potential of 900,000 hectares.

For this, the Budget proposes to increase the outlay for 2007-08 to approximately Rs 11,000 crore (Rs 110 billion) from the present Rs 7,500 crore (Rs 75 billion) of the current year.

While the increase in outlay is indeed impressive, one has to note that during the past decade despite spending Rs 35,000 crore under this scheme, the net accretion to the acreage under irrigation has been negligible.

If the track record of the past decade in this sector is to be believed, then nothing big can be expected from this either. Like many other grand plans and promises contained in the Budget, this too needs to be taken with a pinch of salt.

Further, the Budget expects the entire country to follow the Tamil Nadu model to repair, renovate and restore water bodies. It maybe noted that the World Bank has signed a loan agreement with Tamil Nadu for Rs 2,182 crore (Rs 21.82 billion) to restore 5,763 water bodies having a command area of 400,000 hectares.

What is unsaid is that the Tamil Nadu government spends approximately Rs 750 crore (Rs 7.50 billion) every year for the distribution of free television sets. In effect, the TN government is borrowing from the World Bank to distribute free TVs.

If the state government were to stop this free distribution of free TVs for three years, there would no need for World Bank assistance. And, in the process, 'stipulations and conditionalities' of the World Bank have been thrust upon an unsuspecting population.

And the Budget pleads for the other states to follow this model of mortgaging their right to the World Bank to secure this loan.

Sixth, another issue that the Budget seeks to address is the issue of depletion of ground water. According to the Budget, the Water Board has identified 1,065 assessment blocks in the country as 'over-exploited' or 'critical.'

The strategy recommended by the experts has been the 'Tamil Nadu model' as practiced by the erstwhile Jayalalithaa government to divert rainwater into 7 million 'dug wells' at a proposed cost of Rs 4,000 per well. Tamil Nadu achieved this at a fraction of this cost.

For this, the Budget proposes to provide 100 per cent subsidy to small and marginal farmers and 50 per cent subsidy to other farmers. Instead of announcing the scheme, the Budget announces that the ministry of water resources will finalise the scheme shortly.

The catch is that this could take months even to notify the scheme, leave alone effectuating the same. Nevertheless, the Budget allocates a sum of Rs 1,800 crore (Rs 18 billion) to Nabard for the purpose. This is sought to be held in escrow, and expected to be disbursed to the ultimate beneficiaries.

Seventh, the Budget concedes that the green revolution of the 1960s was brought about by thousands of agricultural extension workers who worked side by side with our farmers under a programme called Training and Visit (T&V).

Sadly, the extension system seems to have collapsed. In order to revive extension work, the Budget expects the ministry of agriculture to draw up a new programme that will replicate T&V with suitable changes. While it is indeed laudable, the fact of the matter is that no allocations are made out in the Budget.

The other issues in the Budget for which the allocations range from Rs 230 crore (Rs 2.30 billion) for the Agriculture Technology Management Agency (ATMA), Rs 100 crore (Rs 1 billion) for the new Rain-fed Area Development Programme, Rs 500 crore (Rs 5 billion) for the National Agricultural Insurance Scheme (NAIS). There is also an allocation of Rs 100 crore (Rs 1 billion) for the Agricultural Insurance Corporation to sell weather-based crop insurance. These are all meagre amounts given the population (approximately, 500 million people) dependent on agriculture and the weak delivery mechanism that makes this amount still smaller.

On a per capita basis, this translates into less than Rs 20 per year. It may be noted that this is at the gross level. Accounting for systemic leakages, the actual flow to the ultimate beneficiaries could be much lower.

Similarly, the proposal to allow Nabard to issue rural bonds to the extent of Rs 5,000 crore (Rs 50 billion), raising the corpus of RIDF-XIII in 2007-08 to Rs 12,000 crore (Rs 120 billion) and other schemes announced in the Budget have either no significant allocations or are mere announcements and have nothing to do with the Budget per se.

Finally, it is essential that one quotes the finance minister's Budget speech: "Mr. Speaker, Sir, I have devoted the last 15 minutes or so to agriculture. There is no dearth of schemes; there is no dearth of funds. What needs to be done is to deliver the intended outcomes. Saint Tiruvalluvar watches over us and warns: "Uzhavinar Kai Madangin Illai Vizhaivathoom Vittame Enbarkum Nilai" [If ploughmen keep their hands folded, even sages claiming renunciation cannot find salvation].

Profound words indeed from the immortal saint. But much as the advice is for all of us, it is well and truly directed towards the finance minister and his colleagues in the Cabinet. Naturally, one fears that the farm sector would get only these 15 minutes of attention from the finance minister during the entire year.

Strangely, we have labelled this Budget as a farmers' delight. The truth of the matter is that it is not.

Long on words and short on allocations, Budget 2007, on a critical analysis remains a wonderful exercise in coherent semantics, logical arguments and flawless prose. Wherever it concerns the quantum of allocations -- it has been too less or simply non-existent -- and where allocations have been adequate or substantial, the delivery mechanism is suspect.

Needless to emphasise, a year later the farm sector will continue to be under stress, farmers' suicides would continue and poverty would be widespread in India.

No wonder, symbolically our financial year begins on All Fools Day. This year too is no different.

The author is a Chennai-based Chartered Accountant. He can be contacted at mrv1000@rediffmail.com

M R Venkatesh