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Pampered or ignored?

Economists are worried over the Govt’s silence on how it intends to raise the money to support the sops given to farmers in Budget 2008-09, reports Gaurav Choudhury.

business Updated: Mar 03, 2008 23:53 IST
Gaurav Choudhury

The Union Budget 2008 comes in the background of robust economic growth. India’s gross domestic product is estimated to grow at 8.7 per cent in 2007-08 with manufacturing and services sectors continuing to be the twin engines of growth.


But, the farm economy that supports about two-thirds of the country’s population has remained a laggard raising concern among policy makers. Agriculture and allied sectors is estimated to grow at 2.6 per cent during 2007-08 as against the previous year’s growth of 3.8 per cent.

The pre-budget Economic Survey observes that there has been a loss of dynamism in the agricultural and allied sectors in recent years with lower production of foodgrains at 217.3 million tonnes during 2007-08 (final estimate) compared to advance estimates made for the year at 219.3 million tonnes.

A report by global financial advisory and consulting firm PricewaterhouseCoopers (PwC) felt that with elections looming in the horizon “this Budget was expected to be and is an election Budget.”

“True to expectations the finance minister has announced a slew of measures favoring the “Aam Aadmi”, particularly the “Kisaan,” the report said.

Finance minister P Chidambaram has announced a comprehensive scheme of debt waiver and debt relief for farmers in respect of loans overdue on December 31, 2007 and which remained unpaid until February 29, 2008. Besides, he has also announced a one-time settlement (OTS) scheme for some farmers.

According to government estimates, about three crore small and marginal farmers and about one crore other farmers will benefit from the twin measures totaling about Rs 60,000 crore.

Analysts and economists, however, were not certain how the government would raise the additional resources for this.

“Though a political necessity, this is an unfortunate disincentive for credit compliance and forms a bad precedence,” the PwC report said.

Chidambaram maintained the government would raise the necessary funds in a manner that it would not bleed the balance sheets of public sector banks. “I have said whatever loans are written off an equivalent liquidity will be provided to the banks concerned,” he said. Dun & Bradstreet Chief Operating Officer Kaushak Sampat said: “The single most important concern that has arisen out of the Budget has been the debt waiver of Rs. 60,000 crore agricultural loans disbursed to the farmers.”

“The Budget has been silent on the financing aspect of this waiver. However, we believe that the write-off is likely to have an adverse impact on the fiscal front for the government and/or the banking sector. Further this could set a wrong precedence towards financial market discipline thereby increasing the tendency for further defaults,” Sampat said.

A Confederation of Indian Industry (CII) post-budget analysis also echoed similar opinion.

“The loan waiver aimed at removing agricultural indebtedness is welcome as long as it does not hurt public sector banks. While the benefit to the farmers of the Rs 60,000 crore loan waiver is well deserved and necessary, one has to explore every possible way to find out if the same benefit could not have been given in any other way. A loan waiver should not send the message that a financial obligation like a loan can be reneged, which would send distortionary messages all across,” the CII analysis said.

Apart from the loan waiver, the budget has also announced the setting up of an irrigation and water resource finance corporation, a Rainfed Area Development Programme, a Special Purpose Tea Fund (SPTF) for re-plantation and rejuvenation and a crop insurance scheme for tea, rubber, tobacco, chilli, ginger, turmeric, pepper and cardamom to be introduced.

The finance minister said the focus on agriculture was necessary as despite a number of government interventions in the past, production of foodgrains and pulses had stagnated.

“More and more farmers were slipping out of the institutional credit system…After a long gap, we have become a marginal importer of food-grains. If we continue to be dependent on imports, we would be subjected to world prices of foodgrains that have been going up,” Chidambaram said.

He said that distress for the farmers calls for a unorthodox responses and “time has come for the country to stand up for the farmers and be counted.”

The Economic Survey said that public investment in agriculture has declined and this sector has not been able to attract private investment because of low returns.

“A second green revolution, particularly in the areas that are rain-fed, may be necessary to improve the income of the persons dependent on the agriculture sector,” it said.