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Counterpoint: The Budget the Farmer

There are times - in a complex economy like India - when the market fails to equitably distribute the wealth generated by the boom, writes Vir Sanghvi

india Updated: Apr 02, 2008 15:11 IST
Counterpoint | Vir Sanghvi

In the growing euphoria over emerging superpower India and the new prosperity that has caused us to be the envy of the world, there is one statistic that we always brush under the carpet. No matter how much money we, in the cities, earn, the India of the villages is a very different place. Small and medium farmers struggle to find food for their families. Most are in debt — to banks and moneylenders — and many cannot ever hope to repay these loans. The situation is so bad that all over India — but especially in such regions as Vidharbha — farmers are committing suicide because of the pressure from moneylenders and creditors. The exact figures for farmers’ suicides are a subject of some dispute, but here are some indicative numbers. In 2001, the government estimated that of every 100,000 farmers, as many as 13 killed themselves, largely because of indebtedness. If you broadened the ‘farmer’ category to include cultivators, then that figure went up to 16. And, 2001 was not such a bad year for farmers. Since then, things have got worse and most estimates suggest that the rate has moved upwards Or, let me put it differently: every 39 minutes, one farmer commits suicide. That’s not a figure that we like highlighting when we brag about our 9 per cent growth rate, so it is generally airbrushed out of the glowing picture we paint of our economy. After all, how can we claim to be an emerging superpower when our farmers continue to kill themselves from desperation and despair?

It has always amazed me how educated Indians pretend that the suicides are simply not happening. During the NDA regime, it struck me as surreal that even as the CII and other trade federations were honouring Chandrababu Naidu (“He should be Prime Minister considering the great job he’s done in Andhra”), farmers in his state were drinking pesticide and killing themselves (and often their families) because they saw no point in living and no hope for the future.

Despite the change of government, not much has altered. As the HT’s Bombay edition has reported (even as other newspapers have played down the story), the situation in Vidharbha is even more desperate than it was a few years ago. Whatever the gains of liberalisation, they have not been passed on to the poor and struggling farmer. The new prosperity has remained a largely urban phenomenon, entirely excluding those on the margins of our society.

In 1993-94, 9.5 per cent of our rural population was unemployed. In 2004-05, that figure went up to 15.3 per cent. So, far from creating wealth for farmers, the so-called new prosperity has actually left them unemployed. Inevitably, they have survived by borrowing. An astonishing 48.6 per cent of farm households are in debt. And of that figure, 61 per cent consists of poor farmers with holdings below one hectare.

The basis of most capitalist economics — and therefore, the guiding principle for the pink papers, the TV channels and the business analysts — is the market. Few people would dispute that it is a more efficient way of allocating resources than central planning. This is why economists like Dr Manmohan Singh oppose subsidies, administered prices and other political decisions that cause distortions in market economics. In an ideal world, the market should fix prices and the role of the government should be restricted to regulation and policing.

But we do not live in an ideal world. You need only look at the disparity between the benefits you and I have received from the prosperity of the last decade and the heart-breaking condition of India’s small farmers, to recognise that there are times — in a complex economy like India — when the market simply fails to equitably distribute the wealth generated by the current boom.

How difficult can it be to accept that when the market has failed — as it clearly has in the case of the small farmer — we need direct intervention? How hard is it to see that a situation where four of the world’s 10 richest people are Indians and yet lakhs of farmers kill themselves is entirely unacceptable in any fair and civilised society?

Very difficult, it seems — at least if you are analysing the Union Budget.

Consider the manner in which the pundits responded to P Chidambaram’s announcement that he would waive farm loans: the Finance Minister had been irresponsible! He had wrecked the foundations of our economy. He had destroyed the banking system. He had plunged the nation into debt. And so on.

Intrigued, I tried to work out what the objections were. Surely, any fool could see that a desperate situation where farmers were killing themselves required a dramatic solution? Not really. The commentators first objected on the familiar grounds that loan waivers went against the principle of market economics. Fair enough. But so do tax holidays for industry, SEZs, protective duties and nearly every other benefit that the private sector routinely demands.

Then, the objections got technical. The loan waiver would amount to Rs 60,000 crore. By writing off the loans, nationalised banks would take a massive hit. Chidambaram clarified that the government would make good the losses incurred by banks. Fine, said the critics, but where will you get the Rs 60,000 crore from? Chidambaram responded that, first of all, many of the loans were bad debts anyway (the farmers did not have the means to repay them). And that secondly, he had made provisions for the money in his calculations. Nobody, I noticed, bothered to ask where he would find the money to make up for all the tax concessions he had given industry and the middle class. That deficit will amount to thousands of crores.

Next, came the moral argument. By waiving the loans, Chidambaram was penalising those farmers who had taken the trouble to repay their debts. He was condoning financial irresponsibility and weakening the national character.

By itself, this is not a bad argument. The problem is that business analysts and the pink papers routinely wave it aside when private industry is the beneficiary. Take the whole fuss over the telecom licences a few years ago. In brief, what happened was this: the government auctioned mobile phone licences. The people who made sensible bids lost out to those who pledged outrageous and unrealistic sums. Naturally, the winners of the auction found that they could not pay the money they had promised. The right thing to do, as Jagmohan, telecom minister at the time, argued, would have been to take away their licences. The people who had made logical bids now deserved a second chance because the gamblers had gone bust. Most business commentators argued otherwise. The operators should not be made to pay the money they had promised, they said. The industry should just shift over to a revenue-sharing-licence-fee model.

The pink papers won the day. Jagmohan was moved to another ministry. The government waived the payment of the huge sums promised at auctions. And those who had made responsible bids lost out to those who had not only pledged unreasonable amounts of money but, now, did not even have to pay them.

So, one rule for irresponsible millionaires. And one rule for suicidal farmers. Welcome to the double standards of the New India!

Finally, there were the practical objections. It did not help to waive bank loans. The farmers were in debt to moneylenders, not banks. This is only partly true. As much as 58 per cent of rural indebtedness is to banks and institutions. Yes, 42 per cent is to moneylenders and traders. But surely, you cannot object to a proposal that helps over half of India’s small farmers on the grounds that the rest do not benefit? Of course, there is a case for increasing micro-credit in the villages and for throwing out the moneylenders. But that does not negate the value of this loan waiver.

The only practical objection that made any sense was the criticism that many of this government’s well-meaning schemes have failed in their implementation. Despite its laudable intentions, the Rural Employment Guarantee Scheme has not had the impact it was meant to. Similarly, there is some doubt as to whether the loan waiver can be implemented by Chidambaram’s deadline of June 30. And, of course, we need longer-term measures to help the farm sector.

But these are arguments for better administration and new initiatives. They are not arguments against the writing off of loans.

So why, when the logical objections are so weak, have so many of us come out so strongly against the loan waiver? It would be easy to say that we have become an insensitive society, unaffected by the suffering of the helpless and the poor.

But I don’t think it’s as bad as that. The real reason I suspect is just one of distance. The richer we get, the more removed we are from the India of the villages, the India of the emaciated bullocks, the India of the barren, fallow, cracked farmland and the India where people still struggle to feed their children.

Our concerns are the concerns of the urban middle class: traffic, tax rates, Sensex and school admissions. We forget that no matter how bad things get for us, we are still much, much better off than millions of our countrymen: the silent majority that survives in the India we never talk about.