Business   

The budget from a farm perspective financial scene

Two highly educative seminars on Budget 2008 looked at the fiscal policy from the farmer’s perspective. One was arranged by the Centre for Cauvery Delta Development Studies (CCDDS) at Thanjavur. The other, organised by the Madras Institute of Development Studies (MIDS), was aptly called a multi stakeholders’ dialogue on the budget as speakers from diverse fields such as industry, chambers of commerce and the media besides a number of agriculturists participated.

For two fairly obvious reasons the central theme of both seminars veered around agriculture and especially the indebtedness of farmers. P. Chidambaram’s massive Rs. 60,000 crore loan waiver scheme for certain categories of farmers hogged the limelight, practically eclipsing all other significant issues in the budget. The second reason had to with the fact that a large part of the audience at the two seminars was either directly or indirectly connected with the farm sector.

One significant issue that probably did not get the full attention it deserved was education. At the seminar organised by the MIDS, M. Anandkrishnan welcomed the vastly stepped up budgetary outlays on education besides health and rural development However, on the flip side, a large proportion of the outlay for education will be accounted for by the proposed new centres of higher education, the three new IITs, two IISERs, 16 new central universities, a new IIIT at Kancheepuram and so on. Will primary education get a fair deal? The Finance Minister’s emphasis on skills development and training is to be welcomed wholeheartedly.

Other noteworthy features of the budget such as the tax reliefs for all categories of income tax payers and reduction in the Cenvat structure drew comments but the context in which these were framed was not adequately covered. Since overall growth this year was seen slowing down due to a decrease in consumption, the fiscal stimulus to put more money in the pockets of tax payers as well as bring down the cost of certain goods is a good idea. However, despite the immediate impact these proposals will have on consumers, these were considered incidental to what was taken to be the main thrust of the budget, namely, the debt waiver scheme.

In fact, despite its headline catching impact, the debt waiver scheme for farmers need not really be in any budget. As is widely known now — but was considerably less clear on budget day — the Finance Minister did not have any clear proposals to fund the proposed write off. But he promised liquidity for banks at the appropriate time. [Mr. Chidambaram, however, announced in Lok Sabha on March14 that the entire amount of Rs. 60,000 crore would be provided over three years to settle the burden fully.] The debt relief package was, for a variety of sometimes conflicting reasons, welcomed by all the participants. Even granting that it is mainly a political exercise, it should be commended because the agrarian economy has for long been neglected by policy makers.

Farming however, according to all the speakers, has ceased to be viable, especially when the average size of the farm is small. Many speakers said that the farmers were selling pieces of their already small holdings to meet their consumption expenditure. At the present rate, over the next few years, there would be few traditional farmers left to till the land. More specific criticisms of the loan waiver scheme related to its restrictive scope — it is tied to acreage and may not benefit farmers in dire need. A way out could be to allow write-offs up to certain amounts and those outstanding over specified periods. The size of the holdings need not be the sole consideration.

Other contemporary problems include non-availability and (if available) the high cost of farm labour, paucity of extension services and inadequate information about government schemes and announcements, including the minimum support prices. Mainline media ought to understand and present the problems of the agrarian economy in greater detail and to a wider audience. While conceding the last point one wonders whether it is possible at all for even a financial newspaper to capture the wide heterogeneity that seems to obtain even in a few contiguous districts of Tamil Nadu.

One lasting impression from the two meetings is disturbing. The justification for the loan waiver package is rooted in the background of widespread indebtedness and suicides. Viewed that way, there does not seem to be any other alternative. Contrary opinions will be in a minority. However, even here, an expert committee appointed by the Finance ministry has pointed out that indebtedness is only a symptom and not the cause of the widespread agrarian crisis, which should be addressed in its totality.

But it seems illogical and downright misleading to justify the scheme on grounds that other sectors of the economy such as the corporate sector have been granted much larger concessions either by way of taxes foregone or writing off by public sector banks of non-performing assets of big industrialists that are significantly higher than the estimated Rs. 60,000 crore for the farm sector.

The flaw in such arguments is this. It is the exchequer not the banks that deals with tax matters. To say that banks, even public sector banks with a proven record of very limited autonomy, should compensate one sector for its alleged neglect by policy makers is a little far fetched. In any case, no one doubts the need for evolving a sound repayment culture in rural credit. That is bound to take a hit now.

Simply put, loans given to any body or any sector are meant to be recovered. That some of these loans go bad and hence have to be written off is not disputed. But the point is that within the commercial banking framework, there should be neither loan melas nor competitive waiver of loans. Surely the next government will have to do something more spectacular.

C. R. L. NARASIMHAN

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Airport projects hit a rough patch
Inclusive growth and technological diffusion
The budget from a farm perspective financial scene
Amendments proposed in the Finance Bill, 2008
Shot in the arm for cruise terminal at Kochi port
Federal Bank ties up with Birla Sun Life
Minister’s promise to timber merchants
Mahindra launches new three-wheeler

Copyright © 2008, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu