Budget 2020: A lost opportunity

Farmers work very hard only to find they have been shortchanged. 

It’s a lost opportunity. At a time when a slump in rural spending had led to a decline in rural demand pulling down country’s GDP to less than 5 per cent, providing more money into the hands of rural population – where 70 per cent households are engaged in agriculture – was being considered to be the surest way to prop up the economy. At a time when rural consumption is at an all time low, strengthening public expenditure in rural areas would have given a much wanted stimulus to agriculture. 

Knowing that the slowdown was not because of global factors but was driven entirely by domestic reasons -- lack of demand and slackening investments – most economists had suggested pumping in more money by way of direct income support to farmers and farm workers. At a time when bottom 60 per cent of the population holds only 4.8 per cent of the nation’s wealth, enhancing the budgetary allocation under PM-Kisan Samman Nidhi Scheme was considered to be an ideal route. Although I had suggested increasing the PM-Kisan allocation by another Rs 1.50-lakh crore, which would mean a direct income support of Rs 1,500 for a farming family per month, I was thinking at least the government would double the annual allocation for farmers – from the existing Rs 6,000 to Rs 12,000 per year. In addition, the budgetary allocations under MNREGA were anticipated to go up from Rs 70,000-crores, to at least Rs 1-lakh crores to make a meaningful impact. After all, farm wages have dipped to a five year low. 

Not only that the Finance Minister failed to utilise PM-Kisan and MNREGA for creating more rural demand, which would have led to increased consumption thereby leading to a higher economic growth, agriculture and allied sectors, irrigation and rural development and panchayati raj too did not receive any quantum jump in budgetary allocations. The total budgetary provisions this year are at Rs 2.83-lakh crores, which is hardly an increase over last year’s revised estimates of Rs 2.68-lakh crores. The outlay for farm credit has however been increased from Rs 13.5-lakh crore last year, to Rs 15-lakh crore this year. Studies have meanwhile shown that 41 per cent small and marginal farmers do not still avail credit from scheduled commercial banks. What needs to be understood is that farmers do not need more credit. What he needs is a higher income. 

In fact, the budgetary allocation for food subsidy has come down from 1.84-lakh crore to 1.15-lakh crore this year. This has raised doubts whether the government is intending to withdraw from procurement operations. Many farmer groups have raised this concern. Since the Finance Minister in the very beginning of her speech talked of liberalising farmers markets, more concerns have cropped up over the reduction in food subsidy. This assumes importance in the wake of recent developments where the Commission for Agricultural Costs and Prices (CACP) have recommended putting a stop to the open-ended food procurement policy. Already, Punjab and Haryana are under tremendous pressure to cut down on food procurement. Punjab has meanwhile amended the appropriate laws allowing for private sector participation and opening up for of private mandis.   

The 16-point action plan the Finance Minister spelled out as part of the Aspirational India that she talked about provides a roadmap for shifting to corporate agriculture. She said that the government would encourage those States which have implemented the three Model Acts that have been proposed earlier. These relate to land leasing law, market liberalisation and contract farming. Saying that agriculture needs to be made competitive, she listed a couple of programmes to double milk processing by 2025, increasing fish production to 200 lakh tonnes by 2025, integrating financing on warehousing receipts with e-NAM so as to encourage commodity trading. To launch Kisan Rail and Kisan Udaan for transporting perishable commodities too would be beneficial for agribusiness companies. Although much of the 16-point action plan that she listed have already been talked about in previous budgets but I didn't find any separate allocation for these programmes. .  

To lay out a roadmap for the direction of future agriculture is perfectly alright but there is a need to first ascertain how effective the pathway would be. Most of the reforms being brought in agriculture are borrowed from America and European Union. But what is not being explained is that if these policies were effective, why is it that agrarian distress in US/EU is at its peak? The spate of rural suicides in America, for instance is 45 per cent higher than the suicides in urban centres. Real farm income growth has been steadily on the decline in the US since the 1960s. India therefore needs to redesign agriculture in a way that it ushers in rural prosperity. #

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Indian agriculture has been in distress for over two decades. Why couldn't economists see it earlier?

Pic courtesy: The Hindu

It was in 2013, when just prior to the inauguration of the annual World Economic Forum (WEF) jamboree at Davos in Switzerland, Oxfam too released its annual global inequality report. Estimating that the richest 100 families in the world had added $ 240 billion to their wealth in a year, the report said the amount of wealth concentrating in the hands of top 100 was good enough to wipe out global poverty four times over. If only that report had been heard and action taken to reduce global poverty, the widening inequality could have been contained.  

A few days back, Oxfam released its latest ‘Time to Care’ report ahead of the 50^th Annual Meeting of the WEF. While it once again clearly brought out how the concentration of wealth in the hands of world’s 2,153 billionaires had accentuated over the years, almost equalling the wealth in the hands of 4.6 billion people or 60 per cent of the global population, it also pointed to the worsening inequality in India. India’s richest 1 per cent holds more than four times the wealth that exists in the hands of 95.3-crore Indians forming 70 per cent of the country’s population. In addition, the combined wealth of India’s richest 63 families was higher than the Rs 24,42,200-crore outlay of the Union Budget for the financial year 2018-19.   

Coming at a time when all eyes are on Budget 2020, it will be interesting to see whether the Finance Minister Nirmala Sitharaman will make an attempt to correct this historical distortion in economic approach. With growth hitting an 11-year low and that too on the back of an economic slowdown, and with big business drumming up fears of fiscal slippage if she resorts to increased government spending so as to spur rural demand, I doubt if the credit rating agencies and the economists working with brokering agencies will allow for any policy space to be utilised for bridging the widening inequality. Already, enough noise is being created in the mainline media warning against any fiscal exuberance, suggesting big-bang measures which harbours on more of the same and therefore keep fiscal deficit within the target proposed.  

At a time when fall in consumption and investment are being considered as the reasons behind the economic slowdown, any meaningful attempt to enhance rural spending will come from providing more income in the hands of the rural poor, which will also go a long way in addressing growing inequality. Regardless of what credit rating agencies have been suggesting, the Finance Minister will have to defy the contours of the predominant economic thinking that has pushed the economy on a downhill slide. An economy which caters to serving the consumption needs of 10 per cent of the population must now look beyond, and as the Prime Minister often says to translate into Sabka Saath Sabka Vikas.   

In other words, Budget 2020 provides a perfect opportunity to set the economic imbalance right.

In economic terms, everything boils down to creating demand. More the demand more is the economic growth. And it is primarily for this reason the 7th Pay Commission was hailed by India Inc as a booster dose for the economy. After all, more income into the hands of employees would mean more demand, and thereby more consumption. Similarly, any further relief in personal income tax is expected to leave more surplus money into the hands of urban middle-class thereby giving consumers more to spend. But again, this fits into an economic thinking that restricts all measures to cater to consumption needs of 10 per cent of the population. On the other hand, I have always argued that unless growth is inclusive the economic benefits will not reach the masses. Considering that bulk of the rural poor comprises farmers and farm workers, the focus has therefore to shift to agriculture.

Of the 95.3-crore Indians that the Oxfam report talked about, at least 60-crore are engaged directly or indirectly with farming.  The first and foremost step is to start viewing agriculture as part of the formal economy. Agriculture should not only be seen as a sector whose only contribution is to ensure that food inflation does not cross the four per cent (plus or minus two per cent) limit as laid down under the Reserve Bank of India (RBI) macro-economic policy, but should be seen as a sector that can create economic buoyancy. More so, at a time when the bottom 60 per cent population holds only 4.8 per cent of the national wealth. This is because agriculture unfortunately has been kept deliberately impoverished so as to keep economic reforms thriving as a result of which agrarian distress remains largely pronounced. According to the Economic Survey 2016, a report that I have often quoted, the average farm income in 17 States of India stands at a paltry Rs 20,000 a year. In other words, farming families in roughly half the country, survive on less than Rs 1,700 a month. At such low incomes, the share of agriculture in country’s GDP is bound to remain low.

The IMF says that declining rural demand has pulled down India’s growth, which in turn has pulled down global GDP. This became known to IMF (and for that matter to mainline economists) only when India’s GDP figures slipped down to less than 5 per cent. But even for the past two decades, farm incomes had either remained stagnant or were in the negative, which means rural spending were already low. This fact was never acknowledged. An OECD-ICRIER study for the period 2000 to 2016-17 shows that Indian farmers had lost Rs 45-lakh crore on account of being denied the rightful price. This was followed by a period when according to Niti Aayog, annual growth in real farm incomes had remained at ‘near zero’. However, not even an iota of concern was exhibited by the World Bank/IMF, the credit rating agencies or India’s mainline economists at the extra-ordinary crisis that prevailed in rural India. As long as GDP hovered at 6 per cent and above, economists failed to see the slump in rural demand.

The launch of PM-Kisan scheme in last year’s budget, providing a direct income support of Rs 6,000 per year per farm family (owning land), for which a budgetary provision of Rs 75,000-crore was made, is a ‘tectonic’ shift in economic thinking. As someone who had relentlessly been seeking an income transfer to the farming community, to partly offset the economic loss farmers have been undergoing year after year, I think PM-Kisan is the right vehicle coming at the right time to increase rural incomes. There is no other policy instrument that can reach all farmers. To make a meaningful impact, my suggestion to the Finance Minister would be to provide an economic stimulus package of Rs 1.50 lakh crore over and above the Rs 75,000-crore that is already allocated under the PM-Kisan scheme. This would provide an amount of Rs 18,000 ever year or Rs 1,500 per month (against Rs 500 at present) which is enough to meet some farm expenses like cost of seed, manure and bio-pesticides. This may not sound to be of much significance for those living in the cities but imagine the implications it has for the rural poor whose income is hovering around Rs 20,000 per year. In any case, the additional allocation under PM-Kisan scheme will flow back into the markets by way of enhanced consumer demand. An effort should also be made to ensure 100 per cent implementation of this scheme. At present, against a total of 14.5–crore farmers, only about 7.6-crore farmers have been covered till Nov 30. Also, the Finance Minister should expand this scheme to benefit tenant farmers.

When farm incomes are low, it has negative fallout on farm workers. According to a study by the Centre for Monitoring Economy (CMIE), in the past one year, 2018-19, almost 1.1 crore people lost their jobs. “Estimated 91-lakh jobs were lost in rural India, while the loss in urban India was 18-lakh jobs. Rural India accounts for two-thirds of India’s population but it accounted for 84 per cent of the job losses,” the report said. Several other studies have shown farm wages declining to its lowest in past five years, and massive job losses being faced by both farm and non-farm workforce. Even the MNREGA scheme, for which a budgetary provision of Rs 61,084-crore was made under revised estimates for 2019 fiscal, numerous reports of payments not being made in time have appeared. To bring the economy back on track, my second suggestion would be to enhance MNREGA budgetary allocation by another Rs 10,000-crore, taking it to Rs 70,000-crore for fiscal 2020.

While the Rs 25,000-crore corpus for last-mile funding for stalled housing projects may help the construction industry, another stimulus of Rs 25,000-crore is needed to prop up the Zero Budget Natural Farming (ZBNF) initiative that the Finance Minister had mentioned in last year’s budget but refrained from making any budgetary provisions. Drawing from the successful reach of the ZBNF programme in Andhra Pradesh, where approximately 5.85-lakh farmers have been shifted from chemical farming systems, it is time to replicate organic cultivation in erstwhile Green Revolution areas, which are faced with severe crisis in groundwater depletion as well as environmental contamination. In addition, an allocation of Rs 500-crore be also made to set up Farmer Markets in major urban centres. This should be to encourage the supply of chemical free farm produce to the health conscious urban population.  

And finally, I expect the Finance Minister to launch an Ease of Doing Farming initiative on the lines of ease of doing business. After all, if 7,000 steps for ease of doing business can be laid out for the industrial sector, agriculture too needs it desperately. At every step, linked to production and marketing, a farmers faces obstacles that are primarily because of lack of governance. This will go a long way in making agriculture an economically viable and environmentally sound enterprise. A vibrant agriculture will create so much of demand that the wheels of development will never be faced with a slowdown. Try it, to experience it. #

Source: 'Ease of Doing Agriculture' is the way forward. National Herald. Jan 31, 2020
https://www.nationalheraldindia.com/opinion/ease-of-doing-agriculture-is-the-way-forward?fbclid=IwAR2j0nI_Zg5XA1MMD6z77toBjeFfYZpy-eHubUqcXKtQ6VpVYkdeegq3oG8  

READ MORE - Indian agriculture has been in distress for over two decades. Why couldn't economists see it earlier?

Four priorities for Finance Minister in Budget 2020

Pic courtesy: Business Today

There are three very significant findings that should shape the lists of economic measures that the Finance Minister Nirmala Sitharaman is expected to spell out while presenting the budget on Feb 1. Especially at a time when the challenge is to pull the country out from an economic slowdown, a few corrective steps in the right direction can surely pave the way for churning back the stalled wheels of growth.

A few months’ back media had talked about people thinking twice before buying a pack of biscuits costing Rs 5. This was followed by a consumer expenditure survey report of the National Sample Survey Office (NSSO) – which was later shelved by the government – concluding that the purchasing power of the rural poor is on a decline, computing that the poor in the villages are able to spend only Rs 19 a day to buy food. And more recently, the Niti Aayog itself has acknowledged in a report on Social Development Goals (SDG) Index 2019 released a few weeks back saying that poverty, hunger and inequality has grown in 22 to 25 States and Union Territories.

Taking these three reports together, and weaving a set of measures that brings more money into the hands of the poor, is what will drive the economy. This is what mainline economists call as generating more demand. Most economists agree that the problem is on the demand side, which means unless the poor is able to purchase a Rs 5 packet of biscuits without thinking twice, and unless the rural farm and non-farm wages show an upward trend, which in turn depends largely on revival of agriculture. With farm incomes dipping to the lowest in 15 years, and farm wages on the decline for the past five years, rural spending continues to be low thereby pulling down rural demand.

In other words, since agriculture engages nearly 50 per cent of the population, and has the potential to re-energise the dampening rural economy, Finance Minister’s focus should be on providing more income into the hands of farmers. In any case, let’s not forget that growth in real income of farmers has been almost ‘near zero’ in the past seven to eight years. Therefore, tax concessions to the corporate and the middle class can wait, but the poor can’t. In addition, to enhancing the budgetary provisions under MNREGA, the four priorities that Nirmala Sitharaman must focus on are:  

To begin with, providing an enhanced direct income support, through the PM-Kisan Samman Nidhi scheme, should be the first priority. Adding to the financial allocation of Rs 75,000-crore already made in the previous budget, another provision of Rs 1.50-lakh crore needs to be made under this scheme enabling farmers to receive Rs 18,000 per year as guaranteed income, which comes to Rs 1,500 per month. This amount may not be anything significant for the urban middle class but imagine the difference it will make to farm livelihoods in half the country where the annual farm incomes are a maximum of Rs 20,000 per year. This scheme is already applicable to all land owning farmers, and further it needs to be expanded to include tenant farmers. My first recommendation to the Finance Minister therefore is to provide an economic stimulus package for agriculture, which surely will go a long way in boosting rural spending.

My second suggestion is to set up a fund, call it price support fund or farm livelihood fund, under which a cess is imposed on all value added products which are based on agricultural commodities. For instance, Punjab produces 120-lakh tonnes of rice. If a cess of Re 1 per kg is imposed, Punjab alone will generate a price support fund of Rs 1,200-crore from rice. Take another example of Kerala, which produces 40-lakh tonnes of rice, which means Rs 400-crore can flow into the fund. Similarly, for wheat, a cess of Re 1 for every kg of atta sold, will bring in a huge revenue. Add to it major farm products like sugar, dals, milk and milk products, spices, edible oils, cotton textiles etc, a huge fund can be generated every year. Not only major agricultural commodities, value added products and processed foods too need to have a cess imposed, the cess value varying from a product to product depending on its profit margin.

All these years, farmers have been subsidising the consumers. An OECD-ICRIER study shows that between 2000 and 2016, farmers had incurred a loss of Rs 45-lakh crore on account of being denied their rightful income. The report also says that the loss farmers suffered helped consumers get a retail price advantage of 25 per cent. I think the time has come when consumers need to pay back farmers, and contributing through a price support fund is the most appropriate way.

In last year’s budget, Finance Minister had talked about Zero Budget Natural Farming (ZBNF) but had refrained from making any financial allocations. This was followed by the Prime Minister Narendra Modi asking farmers to move away from chemical fertilisers. Speaking on the Independence Day he had appealed to farmers to shun chemical farming. This is a very significant suggestion coming at a time when intensive agriculture is being blamed for at least a quarter of the greenhouse gas emissions (GHGs). Numerous studies globally have shown how chemical agriculture has led to serious environmental destruction, mining of underground water, and contaminated the entire food chain.

Although the name suggests Zero Budget, it does not mean that the promotion and expansion of natural farming does not require any budgetary allocation. My third suggestion to the Finance Minister is to provide at least Rs 25,000-crores for replicating Andhra Pradesh’ experiment with natural farming in a phased manner. This has to be followed up with the creation of a separate marketing network for organic produce.

And finally, lack of adequate marketing infrastructure is coming in the way of farmer’s getting the right price for their produce. Against the requirement of 42,000 Agricultural Produce Marketing Committee (APMC) regulated mandis there exists at present some 7,000 mandis. Although the government had two years back announced upgrading 22,000 village haats, the progress is very slow. Besides speeding it up, adequate allocations need to be made to widen and improve the network of available mandis, and village link roads. #

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