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The 2008-09 Budget will go down in history for something that it does not contain. There is not a single paisa of allocation made for the farm loan waiver, writes Sitaram Yechury.

india Updated: Mar 06, 2008 01:52 IST

The country appears to be in a state of euphoric sublimation. India has won the Under-19 Cricket World Cup. The seniors have won the tri-series in Australia defeating the hosts in two consecutive finals. Sweet revenge in a series marked by high acrimony.

Domestically, the farm loan waiver and the tax relief provided to lakhs of salaried employees announced in the budget has received widespread acclaim. The 2008-09 Budget will, probably, go down in history for something that it does not contain. There is not a single paisa of allocation made in the budget per se for the Rs 60,000 crore farm loan waiver. In fact, this is an announcement that could have been made independently of the budget. Indeed, it should have come much earlier to alleviate the widespread distress among the farmers. Though belated, it nevertheless is welcome.

The main question is: will this provide the desired relief to the farmers and resolve the current agrarian distress? Unfortunately, the answer will have to be in the negative. This waiver is confined to the loans taken by the farmers from nationalised banks, institutions and cooperatives only. It is variously estimated that nearly two-thirds of the loans taken by the farmers are from private moneylenders with their usurious interest rates. Despite the fact that institutional credit to the agricultural sector had more than doubled during the last three years, the National Sample Survey organisation, in its 59th report, tells us that 42.3 per cent of farmers have taken loans from private sources. Out of an estimated Rs 48,000 crore of loans taken from private sources, Rs 18,000 crore is on an interest rate of more than 30 per cent a year. The bulk of the distress suicides — one in every 30 minutes somewhere or the other in the country — is taking place among this section. Unfortunately, they are out of the ambit of this waiver.

Further, the waiver has been announced for those owning land up to two hectares. There has been no distinction made on the nature of the land, i.e. whether it is irrigated or dry land. In arid lands, even those owning more than three hectares are victims of the current distress. With the highest rate of distress suicides, the cotton growers in Vidarbha belong to this category. These limitations will have to be corrected if the desired intention of providing the much-needed relief to the peasantry in distress is to be achieved.

More important, does this one-time waiver ensure that the peasantry will not slide back into similar or worst distress a couple of years down the line? Unfortunately, yet again, no.

This can be achieved only if certain other measures are simultaneously initiated with urgency. The first, of course, is to widen the reach of institutional credit to cover the entire farming community. This would mean a rapid expansion of the rural banking system. The government policies, however, seem to be working to the contrary. Second, unless an effective and efficient system of minimum support price (MSP) for the produce is ensured, indebtedness among the farmers cannot be prevented. The Commission of Agricultural Costs and Prices has recommended that 24 agricultural products must be given MSP. Yet, the government keeps talking of MSP for rice and wheat only. Under severe pressure, from those who have pointed out that the government is importing wheat at prices substantially higher than the MSP of Rs 850 per quintal for domestic farmers, this has now been increased to Rs 1,000. A similar increase for paddy being universally demanded has not yet been announced. However, unless all these 24 agricultural products are brought under the net of MSP, the pressures on the farmers to slide back into indebtedness cannot be prevented.

The Magsaysay award winning journalist, P. Sainath, delivering the Sumitra Chishti Memorial Lecture recently, raised a pertinent point asking why policy framers are not looking at the reasons that compel farmers to take loans in the first place? The heart of the problem lies in the fact that the costs of cultivation have risen phenomenally since the reform process began in 1991. He estimates that the per acre cost of cultivation has gone up from Rs 2,500 in 1991 to Rs 13,500 today. It is this disconnect between the cost of cultivation and the price for the produce that is pushing increasing numbers of our farmer into life crushing indebtedness.

Clearly, a solution to the deepening agrarian crisis cannot be a single one. Neither can the crisis be resolved by providing some relief to the beleaguered farmer. Certain structural changes will have to be made to increase the yield and productivity in the agricultural sector. This is urgently required to arrest the fast-declining growth rates in agriculture: 5.9 per cent in 2005-06 to 3.8 in 2006-07 to 2.6 in 2007-08. The consequent decline in the production of foodgrains is severely straining the food security situation in the country. Already, five million tonnes of wheat have been imported last year at prices vastly higher than domestic prices. With global foodgrain prices rising very sharply, the increase in the import bill may well consume the entire food subsidy allocated in this budget further decimating the public distribution system. Hence, both for the sake of India’s food security and overall economic development, it is necessary to sharply increase public investment in agriculture. Unfortunately, this has not happened to the required levels in the current budget.

Increases in public investment is the pre-condition to realise the existing potential in our agricultural sector. M.S. Swaminathan informs us that the prevailing gap between potential and actual yields in the crops of rainfed areas such as jowar, bajra, millets, pulses is over 200 per cent even with the technologies on the shelf. Thus, while the loan waiver will provide immediate relief to the farmer, they must be supported by higher investments and a structure of synergetic packages. This budget could have made a beginning in this direction. But, unfortunately, even the opportunity provided by the budget, itself, has been wasted. While there has been an 18 per cent increase in the revenues, the capital expenditures are slated to grow by less than 9 per cent. Instead of using these surpluses for higher public investments, they have been used to reduce the deficits. Such a preoccupation with fiscal fundamentalism in an environment of high revenue buoyancy is not good economics.

If these revenue gains were fully utilised, then the government would have been able to largely meet the promises made in the UPA's Common Minimum Programme like spending 6 per cent of the GDP on education, 3 per cent on public health etc. This was the last opportunity that the UPA government had in its last year to redeem these promises. More important, this would have gone in a large way to arrest the widening of the hiatus between the ‘shining’ and ‘suffering’ India. While 36 Indian US dollar billionaires have assets equal to 25 per cent of our GDP, 78 per cent of Indian people live on less than Rs 20 a day. Alas, the opportunity to improve the levels of livelihood of the vast majority of our people has been wasted.

MP, Rajya Sabha and Member, CPI(M) Politburo