India has a farmer's budget, but will it provide the big boost?
Promises are meant to be broken, especially in politics. Narendra Modi, the Prime Minister of India, in the run-up to the 2014 Lok Sabha had promised "minimum government and maximum governance" to the citizens of India.
He has clearly forgotten the minimum government bit of that promise. At least that is the way it seems from the third annual budget, for 2016-2017, presented by Arun Jaitley, the Finance Minister in the Modi government.
The allocation to the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), a scheme of which Modi has been severely critical of in the past, has been set at Rs 38,500 crore ($5.62 billion) for 2016-2017.
This is the highest allocation ever to the scheme. The scheme guarantees work for 100 days in a financial year to every household whose adults are willing to do unskilled manual work. The trouble is it doesn't lead to the creation of any useful assets and hence, more or less works as a dole.
Also, the scheme doesn't benefit many of those it is intended for. The economist Surjit Bhalla has called MGNREGS as the fourth most corrupt institution in theworld after FIFA, the BCCI (the institution that governs cricket in India) and the public distribution system used by the Indian government to distribute food grains as well as kerosene to the poor.
The allocation of food subsidy stood at Rs135,000 crore ($19.7 billion) down a little from Rs139,000 crore ($20.3 billion) last year. The government sells rice, wheat and sugar at subsidised rate through 550,000 fair priced shops, which form the public distribution system, throughout the country.The trouble is the system is extremely leaky and a huge proportion of the food grains are siphoned off and get diverted into the open market.
A committee to fix up this system was set up very soon after the Modi government came to power. It submitted its report in January 2015. The recommendations of the committee haven't been taken on.The government also sells fertilizers to farmers at a subsidised price. The subsidy towards this has marginally fallen to Rs70,000 crore ($10.2 billion) from Rs 72,438 crore ($10.6 billion) during the last financial year. This small fall is because of a fall in fertilizer prices.
This system is also extremely leaky and only around 35% of urea (a kind of fertiliser) actually reaches the small and marginal farmer it is meant for. The same is true about kerosene as well, which the government dis-tributes through the fair prices shops. Nearly, 46% of the kerosene is siphoned off. The allocation towards petroleum subsidies this year is at Rs26,947 crore ($3.9 billion) against Rs30,000 crore ($4.4 billion) during the last financial year. But what needs to be kept in mind is that oil prices have fallen during the last one year.
What this tells us very clearly is that as far as subsidies are concerned Narendra Modi has been no different from his predecessor Manmohan Singh and continues to run full throttle, what is a very leaky system.Further, the government continues to own 27 banks. Since 2009, the government has invested around Rs102,000 crore in these banks to recapitalise them.
The banks have given loans to crony capitalists close to the previous government, which they are now unable to recover.For the next financial year, the government has allocated a further Rs25,000 crore ($3.65 billion) to be invested in these banks. Jaitley also said that "if additional capital is required by these banks, we will find the resources for doing so."What Jaitley meant here was that the government would do "whatever it takes" to keep these banks going.
The question that Jatley did not answer is -why does the government need to own 27 banks? Over and above this, the government continues to own and run loss making companies. Until March 2014, the accumulated loss on these companies was Rs104,000 crore.
The government continues to own, a loss making airline, a loss making telecom company, a loss making scooter company, loss making hotels and so on. In his speech Jaitley did talk about strategic sale of government owned companies. But the past record of the Modi government (or the other governments before it) has been quite shaky on this front. The government has also talked about selling some assets of these firms.
As Jaitley said, we will en-courage these companies to "divest individual assets like land, manufacturing units, etc. to release their asset value for making investment in new projects." The government also decided to set up a Higher Education Financing Agency (HEFA) with an initial capital base of Rs1,000 crores.
As Jaitley said in his speech: "The HEFA will be a not-for-profit organisation that will leverage funds from the market and supplement them with donations and CSR funds." The question here is why not just allow education to be run as a for-profit business, legally. Currently, most private education institutes in India are owned by politicians, and are conduits as well as generators of black money. Black money is essentially money which has been earned but on which taxes have not been paid.
What this means is that at least the "minimum government" part of Narendra Modi's "minimum government maxi-mum governance" has gone for a toss. Like most electoral rhetoric it has been abandoned-lock, stock and barrel.Now this doesn't mean that there was nothing good in the budget. Here are some of the good points. The government buys rice and wheat from the farmers directly at a price referred to as the minimum support price. The benefits of this direct buying are concerned by farmers in a few states like Punjab, Haryana, Andhra Pradesh etc.The government has plans to extend procurement of food grains to other parts of the country.
It has plans of setting up an online procurement system through the Food Corporation of India. Given that, a government benefit is available, it should be available throughout the country and not only in certain states. A major problem that the Indian farmer faces is get-ting his produce to the market before it goes bad. As the finance minister Jaitley said in his speech: "A lot of fruits and vegetables grown by our farmers either do not fetch the right prices or fail to reach the markets."In order to tackle this the government plans to implement the "Unified Agriculture Marketing Scheme which envisages a common e-market platform that will be deployed in selected 585 regulated wholesale markets."Another interesting move in order to tackle produce going bad is allowing "100% FDI.through FIPB route in marketing of food products produced and manufactured in India."One of the major successes of the Modi government since coming to power has been electrification of villages. As of April 1, 2015, 18,542 villages were not electrified.
Be-tween April 1, 2015 and February 23, 2016, 5,542 villages were electrified. This was more than the total combined achievement of the last three years. Also, the government has promised 100% electrification by May 1, 2018.The government is also trying to create jobs and plans to invest Rs2,18,000 crore in roads and rail-ways during the course of the year.To conclude, while the government is trying to do the right things on many fronts, but by trying to run every business possible, it is just overextending itself.And that is something that could have been easily corrected in this budget. Sadly, an opportunity has been lost.
(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at email@example.com)