A Reform-oriented Budget

K G Karmakar, Professor, SPJIMR, Mumbai and ex-MD, NABARD

The Union Minister for Finance, Corporate Affairs and Information & Broadcasting, Arun Jaitley departs from North Block to Parliament House along with the Minister of State for Finance, Jayant Sinha to present the General Budget 2015-16

Before attempting to analyse the agricultural components of the Budget, the huge leakage of funds in subsidies supposed to be for the common man, but is diverted to those who do not require them, needs to be stopped. Its worth noticing here, the Rs. 3.8 lakh crore Subsidy Bill does not include:

I. The massive diesel subsidy for the transport sector;

II. The misplaced fertiliser subsidy for manufacturers; and,

III. The water subsidy is meant for everyone except the poor, who have no access to the piped water.

While the much-criticised Public Distribution System (PDS), delivering food grains and other staples to the poor is supposed to be the most efficient purveyor of subsidies, the tribal people who need the  subsidised food grains and staples, fail to get, as these asymmetrically route to the urban poor. Another flawed route of subsidy is for railway passengers, who pay rock-bottom prices for rail travel. And another glaring wasted subsidy is for LPG that should not go to the middle and upper class households -- the same is true with subsidised electricity that is being offered to the urban poor (with the poll promises of AAP in Delhi), but nothing of that sort is available to the rural poor.

It is better if the targeting of subsidies should be one of the major administrative tasks of the Central and State governments, so the “Acche Din” will really come for poor. The Cash Subsidy Transfer Scheme should be laid to rest in no time, as otherwise it would create a class of idle people bent on a subsidy spree. The old practices of pampering the labour class, namely the urban poor need to be done away.  Thus, it becomes imperative to concentrate on efficiency, cleanliness and effectiveness in delivery of services. There can't be free lunch and the political elements need to understand it urgently.

The Finance Minister and the Prime Minister deserve to be applauded for keeping the pragmatic approach Union Budget 2015-16, which is reform-oriented and aimed at non-populist sops. But was it really necessary to enhance the Mahatma Gandhi National Rural Employment Gurantee Scheme (MGNREGS) grant by another Rs. 5,000 crore without ensuring proper targeting and asset creation under the said Scheme? The Ministry of Rural Development (MoRD) and all State Governments are obliged to ensure the creation of sustainable development assets for the poor and these funds should not be frittered away as doles for the lazy populace.

The Finance Minister mentioned the five major constraints under which the Budget had to be prepared:

I. Agricultural Income is under serious stress.

II. Need to enhance government spending on Rural Infrastructure, which is grossly inadequate.

III. Contribution of manufacturing industries has slipped to 17 per cent of GDP.

IV. Fiscal discipline and correction enabled States to source 62 per cent of all government funds available.

V. Inflation to be below 6 per cent and fiscal deficit to be reduced to 3 per cent in 3 years.

Agriculture is a primary target for reforms, and the systematic poisoning of soils with chemicals is sought to be reversed with the focus on organic farming and maintenance of soil health cards. The announcement of the Prime Minister Gram Sichai Yojna with an outlay of Rs. 5,300 Crore, is an important scheme for the small farmers. Under-performing National Bank for Agriculture and Rural Development (NABARD) has recieved a bonanza of Rs 25,000 crore for the Rural Infrastructure Development Fund (RIDF), Rs. 15,000 crore each for Regional Rural Banks (RRBs) refinance and LT Credit Cooperatives and Rs. 45,000 crore for ST Cooperative Credit refinance.  

Another Rs. 25,000 crore is for the Rural Development Fund to enhance irrigated areas under farming, improving district irrigation schemes, promoting agro-based industries and ensuring value addition for farmers by enhancing farm incomes with better prices for farm produce. With NABARD in a policy paralysis, it has a difficult task to deliver results especially as the RRBs and Co-operatives continue to underperform. The rural credit mechanism needs to be thoroughly revamped to meet with the genuine credit requirements of the small and marginal farmers.

But some of the major policy/reform announcements are awaited with bated breath. Bringing Non Banking Financial Companies (NBFCs) under the  Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) -- establishment of the Postal Payments Bank, the Procurement Law, The Bankruptcy Code, the Senior Citizen’s Welfare Fund (with a fund corpus of Rs. 20,000 crore), the Self Employment Talent Upliftment (SETU), the revived National Skills Mission, the Public Debt Initiative (removed from RBI), the three insurance schemes for the poor, new PPP Model are all very welcome and shows that the Government is concerned for the masses and is keen on pursuing systemic reforms.

The best announcement of this budget is the creation of the National Agricultural Market that is expected to overrule the corrupt and trader-dominated Agricultural Produce Market Committee (APMC) set up in all states. Instead of helping farmers, these APMCs ensured that only traders benefitted from the fixed market prices and the farmers got next to nothing for their backbreaking labour and huge production risks.

What now needed is a transparent screen-based trading platform in the new style mandis, more small warehouses/cold-storages for the smallholder farmers, reforms in the ware-house receipts system that will benefit farmers and ensuring better quality inputs with no spurious seeds/fertilisers/pesticides. With the micro-irrigation watersheds in place, farmers should benefit immensely and thrive on  that. The joint efforts of the Central and State Governments should ensure that the farmers do not opt for extreme action like suicide.

Finally, this farce of ever-increasing agricultural credit flows every year, namely Rs. 8.5 lakh crore for 2015-16, needs to be taken with a pinch of salt. If only 11 per cent of the smallholder farmers have access to institutional credit, where are all the funds are actually going? The various studies have shown that 38 per cent of agricultural credit is purveyed by metropolitan and urban branches of commercial banks.

What is sure is that smallholder farmers rarely get subsidised commercial bank loans, and with the RBI turning a benign Nelson’s eye to the malpractices and incorrect reporting by most private sector banks and a few of the public sector banks -- the small farmers will continue to be deprived of institutional credit at 4 per cent interest rate.

(The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of INCLUSION. Comments are welcome at info@skoch.in)

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