The world gives lecture on climate but if we tell them that we want the necessary fuel for nuclear energy to move forward, they refuse, he said Prime Minister Narendra Modi on Monday hit out at developed
AGRICULTURE: Growth declines to 2.6% in 2007-08 from 3.8% last year. Presenting a grim picture of agriculture, the Economic Survey projects a decline in the growth of the sector in 2007-08 to 2.6 per cent compared with 3.8 per cent last year. It attributes the poor performance to reduced capital investment and plateauing of yields of major crops, besides the weather-induced productivity fluctuations. The survey also expresses concern over the slowdown in the creation of irrigation potential, degradation of natural resources, and collapse of the farm extension system, which together contributed to below-potential crop yields. It points out that the public investment in agriculture has declined and the sector has not been able to attract private investment because of lower and unattractive returns. The share of agriculture in the total gross capital formation (GCF) has dropped steadily from 10.2 per cent in 2001-02 to 5.8 per cent in 2005-06. However, the share of the GCF in agriculture in relation to the agriculture sector's gross domestic product (GDP) has shown marginal improvement from 11.1 per cent to 12.5 per cent during this period. The overall share of agriculture in the country's GDP, which used to be as high as 36.4 per cent in 1982-83, has dropped to nearly half of that and is reckoned at 18.5 per cent in 2006-07. Referring to the foodgrains production, the survey points out that though in the longer period (1950-51 to 2006-07) the average annual growth rate in foodgrains output works out to 2.5 per cent that is higher than the population growth of 2.1 per cent, but the situation has deteriorated after 1990-91. The growth rate between 1990 and 2007 works out to only 1.2 per cent, falling below the population growth of 1.9 per cent during the period. This has resulted in a decline in the per capita availability of cereals and pulses. "The per capita consumption of cereals declined from a peak of 468 grams per capita per day in 1990-91 to 412 grams in 2005-06, indicating a decline of 13 per cent during this period. The consumption of pulses declined from 42 grams per capita per day (72 grams in 1956-57) to 33 grams during the same period,' the survey states. The pace of creation of additional irrigation potential came down sharply from an average of about 3 per cent a year between 1950-51 and 1989-90 to 1.2 per cent in the Eighth Plan, 1.7 per cent in the Ninth plan and 1.8 per cent in the Tenth Plan. The survey also concedes that the new initiatives taken in the Tenth Plan for extending irrigation potential have had a limited success. While the creation of new potential remained confined to around 8 million hectares, its actual utilisation was even lower, only about one-fourths of it. The survey has stressed the need for a second green revolution, particularly in the rainfed areas, to improve the incomes of more than half of the country's workforce employed in this sector. "Acceleration of growth of this sector will not only push the overall GDP growth upwards, it would also make the growth more inclusive and biased in favour of women,' it maintains.
FOOD MANAGEMENT: Foodgrain stock at 19.2 MT on January 1 this year is 4% lower than the buffer norm of 20 MT. The Economic Survey 2007-08 points to the lower than normative foodgrain stocks for the third consecutive year, caused mainly by the decline in procurement of wheat and rice and their increased offtake under the targeted public distribution system. The foodgrain stock stood at 19.2 million tonnes (MT) as on January 1, 2008, comprising 11.5 million tonnes of rice and 7.7 MT of wheat, respectively. This stock is 4 per cent lower than the buffer norm of 20 MT. Last year, only wheat stock was short of buffer norm. While wheat stock of 7.7 MT is 500,000 tonnes lower than the required norm, the rice stock stood at 11.5 MT, that is 300,000 tonnes lower than the norm. According to the survey, the main reason behind the decline in stocks was due to lower procurement in both wheat and rice. The survey attributes the decline in wheat procurement to low production, lower market arrivals, high market ruling prices, negative market sentiments due to low stocks in the central pool, and aggressive purchase by the private traders. It acknowledges that the increase in government procurement price by Rs 150 a quintal during the 2007-08 marketing season helped wheat procurement to a small extent. The procurement rose by 20.65 per cent to 11.1 MT but the government had to contract imports of 1.8 MT at high rates to meet the consumption requirement. This was the second consecutive year of wheat import. However, rice procurement also fell marginally to 26.3 MT during 2006-07 from 26.7 MT during 2005-06. However, in the ongoing 2007-08 season, procurement till December has been marginally better than the previous season's corresponding purchase. The increase in paddy procurement price by Rs 125 a quintal has helped rice availability in the central pool this year. The regulation of rice export by putting a price cap has also contributed. The offtake of both wheat and rice increased marginally in the April-December period of 2007-08. Wheat offtake during the period was 8.2 MT (against 7.7 MT in the previous year's corresponding period) while the rice offtake was 16.7 MT (versus 15.9 MT in the year before).
Any Budget can be evaluated on a number of criteria. Here, briefly, is a check-list of benchmarks by which today's pronouncements can be scored. First, from the perspective of the finance ministry's own domain, we need to look at what it does on the fiscal front. Mr Chidambaram has shown complete commitment to the mandate of the Fiscal Responsibility and Budget Management (FRBM) Act, to cap the fiscal deficit while eliminating the revenue deficit. The latter is the greater challenge and his convergence towards the zero-deficit target will be a significant yardstick. Beyond the aggregate numbers, he has also indicated his commitment to taking the country to a full-fledged Goods and Services Tax (GST), which will involve a series of rate rationalisations and re-balancing as far as indirect taxes are concerned. These should be watched out for. Second, broadening the scope of evaluation to macro-economic performance, the Budget must be seen in terms of what it does to sustain rapid economic growth, especially in the context of the global as well as Indian slowdown that has set in. To deal with the cyclical effects, he needs to pump money into programmes that will quickly spend it, thus achieving pump-priming. Critical to longer-term growth is the stepping up of investment in infrastructure, not just in terms of financial commitments but also in creating effective vehicles for implementation in the public and private sectors. Even with all the good intentions of the government in play, the infrastructure gap is not narrowing. Third, the ruling coalition's emphasis on inclusive growth is beyond being a political slogan; inclusiveness is a critical component of a sustainable growth path. This needs to be tackled at several levels. Transfer payments to provide households a secure and minimum level of subsistence need to be combined with longer-term programmes that build capabilities and earning capacity. The Economic Survey has shown that, despite doubling social sector spending over the past four years, the country's position vis-
Rs 60k-crore farm loan waiver, I-T exemption limit raised. P Chidambaram unveiled a Budget cleverly designed to win him many popularity contests. There were concessions on the income tax, reductions in customs and excise duties, and the mother of all farm loan waivers. While playing to multiple galleries, the finance minister also managed to reduce the fiscal deficit to lower than the target set under the fiscal responsibility law, and showed progress on the revenue deficit. Along the way, he designed his announcements so as to attack the twin problems confronting the economy: inflation (the excise and customs cuts will help lower prices) and falling consumer demand (lower tax rates for small cars and two-wheelers, and more money in people's pockets from the income tax concessions). Keeping in mind the Congressman's favoured
DEBT WAIVER The loan waiver will benefit about 30 million small and marginal farmers. In an apparent move to appease the huge rural vote bank, the government today announced the biggest-ever agricultural loan waiver package that will cost the exchequer a whopping Rs 60,000 crore. The move will benefit about 30 million small and marginal farmers, whose debts worth Rs 50,000 crore will be completely waived, and about 10 million other farmers. Under this package, while all the outstanding unpaid loans of small and marginal farmers will be totally waived, the other farmers will have to repay only 75 per cent of the borrowed amount under one-time settlement arrangement. Announcing the largesse in his budget speech, Finance Minister P Chidambaram said the agricultural loans, which were restructured or rescheduled in 2004 and 2006, would also be eligible for loan waiver and concessional repayment through one-time settlement arrangement. All agricultural loans disbursed by the scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007, and overdue as on December 31, 2007, but not repaid till today, would be covered under this debt waiver-cum-relief scheme. The tillers of up to one hectare of land would be considered marginal farmers and those having one to two hectares of land would be deemed small farmers. The finance minister announced that the implementation of the scheme would be completed by June 30, 2008. The farmers would become entitled for fresh agricultural loans from the banks after the debt waiver or signing an agreement for repayment of 75 per cent amount under the one-time settlement arrangement. He, however, did not elaborate on how the banks would be compensated for the waived loans. Referring to the indebtedness of the farmers, Chidambaram pointed out that the government had appointed a committee under the chairmanship of R Radhakarishna to examine all aspect of this issue. "The committee had made a number of recommendations but stopped short of recommending waiver of agricultural loans.' The finance minister, however, sought to justify this populist move, maintaining that the government was conscious of the dimensions of the problem and was sensitive to the difficulties of the farming community. He also asserted that the government had carefully weighed the pros and cons of debt waiver and had also taken into account the resource position while taking this decision. Chidambaram told Parliament that notwithstanding some shortcomings, the growth of agricultural credit had been impressive. "We will exceed the target set for 2007-08. For 2008-09, I propose to set a target of Rs 2,80,000 crore.' he said. He thanked the commercial banks and regional rural banks which, together, accounted for between 75 and 79 per cent of agricultural credit disbursed during the year. Chidambaram said short-term crop loans would continue to be disbursed at an annual interest rate of 7 per cent, adding that an initial provision of Rs 1,600 crore had been made for interest subvention in 2008-09.
IRRIGATION Outlay increased to Rs 20,000 crore. In order to provide more stimulus to the agriculture sector, the government has increased the outlay for irrigation projects by over 81 per cent. The outlay has been increased to Rs 20,000 crore for 2008-09, from Rs 11,000 crore for 2007-08. The Centre's contribution to the outlay is Rs 5,550 crore, up 44 per cent over the previous year's Rs 3,850 crore. The Centre's contribution will be disbursed to states in the form of grants. The government is investing heavily in the Accelerated Irrigation Benefit Programme (AIBP) and the Rainfed Area Development Programme (RADP), along with other water resources programmes. Under the AIBP, 24 major and medium irrigation projects and 753 minor schemes will be completed in this financial year, creating additional irrigation potential of 500,000 hectares. The RADP, with an allocation of Rs 348 crore, has been finalised for implementation in 2008-09. Under this, priority will be given to the areas that have not benefited from watershed development schemes. The centrally-sponsored scheme on micro irrigation launched in January 2006 has covered an area of 548,000 hectares under drip and sprinkler irrigation so far. With an aim to cover another 400,000 hectares, an allocation of Rs 500 crore has been made for 2008-09. Under the project, the states
This Budget asks and answers some rather big questions. Begin by asking the man in the street, and he will say that he is happy with Mr Chidambaram's Budget. And so the finance minister has dared politicians to criticize the farm loan waiver, and he might as well dare others to criticize the income tax cuts, if they care to. In other words, he knows that he has touched a popular nerve in both city and country. The second big question to ask, therefore, is whether economics can hope to prevail over populism, or whether political considerations always trump good economics. Certainly the UPA government's fifth and final budget gives unequivocal answers: it is a political budget from start to finish. And so a government led by economists and economic reformers has ended up bowing to political considerations and implementing over five years programmes that they may not believe in, but which they have to introduce and then find reasons to support. When a government led by such notables writes off Rs 60,000 crore of bank money, or 3 per cent of all bank loans, it is as well to remember the harsh words hurled at Devi Lal when he did the same; but since he was an unlettered kulak, he could be safely abused. The truth is that while farmers have been in distress, writing off loans makes every farmer who repaid his loan feel like a fool. What does that do to credit discipline? Also, the write-off does not end rural indebtedness because farmers owe more money to moneylenders. And if they got into financial trouble because farming does not pay enough, then the debt write-off is only a palliative and does not solve the underlying problem. So farmers who borrow again (if the banks are willing to lend) will also get into trouble again. But these are the questions that economists ask. There is also a question that lawyers might ask: how does the government tell the client of a private bank not to repay a loan, unless the government makes it up to the bank? And surely, the government is not about to start paying up to ICICI and HDFC and all the others, is it? The triumph of politics shows also in the national rural employment guarantee programme, which has been extended to all 596 rural districts, even though Rahul Gandhi who first demanded this realises now that the programme is not being implemented well. Another indicator of the soft state is the increase in the income tax floor from Rs 1.1 lakh to Rs 1.5 lakh (it is still higher for women and senior citizens). But even in the United States of America, people start paying tax at a lower income level of $3,400 (Rs 1.36 lakh), while in China the tax floor is $1,400 (Rs 56,000). India is poorer than both those countries, so why do people with higher income in a poorer country get away without paying income tax? The answer is that the government wants the urban, middle-class vote. The fifth indicator of politics trumping economics is the government's refusal to raise petrol, diesel and cooking gas prices to reflect their real cost. So the oil marketing companies have lost over Rs 70,000 crore on this account in the past one year. The way the government does its accounting, some of these figures do not show up in the Budget, even though the government will finally have to pick up the bill. If you add up the oil subsidy, the fertilizer subsidy, the extent of the loan write-offs that have to be made good and the money that has to be provided for the Pay Commission award, the total is huge. That brings up another big question: should the Fiscal Responsibility and Budget Management (FRBM) Act be scrapped? For this law seems to be having the perverse effect of making the government hide more and more of its expenditure and not show it in the Budget. The finance minister can then claim that he is meeting FRBM targets, when in truth he is not. Scrapping the law might encourage more honest budgeting. The last big question is whether governments can be trusted to be responsible with money. Note that taxpayers have paid up an average of 22 per cent more tax each year through the five Budgets of the UPA government
RS 60,000-CRORE BONANZA: The waiver won't help indebted farmers in Chhattisgarh either as most of them hold four and five hectares. The mammoth farm loan waiver of Rs 60,000 crore is unlikely to benefit cotton farmers in Vidarbha and elsewhere as it does not address the fact that dry-land farming attracts far lower loans per acre as irrigated farming. An acre of unirrigated land is entitled to loans of up to Rs 4,000. The same land which is irrigated attracts loans of up to Rs 50,000. In other words, the waiver of loans taken for farmers with two hectares (or 5 acres) would not add up to much for a cotton grower who does dry-land farming, since they have to look at other informal means to meet their borrowing needs In contrast, the per acre loans available for growers of sugarcane, grapes and horticulture crops will benefit hugely. This difference had been pointed out by the Congress party president from Vidarbha Prabha Tai Rao when she had appealed for a waiver of up to Rs 30,000 for farm loans to Finance Minister P Chidambaram recently. "While grape and sugarcane growers will get lakhs of rupees waived in one stroke, the cotton and dry-land farmers will barely get Rs 30,000 waived,' Vijay Jaywanthia, a farmer-turned-activist and a leading voice from the farm distress zone of Vidarbha. The waiver won't help indebted farmers in Chhattisgarh which has been reporting farmer suicides because most of them hold four and five hectares (10 to 12.5 acres). Jaywanthia said the only way this waiver can work in favour of farmers is to waive up to a certain amount, say Rs 50,000 per farmer, or have different waiver limits for dry land and irrigated land farmers. The farmers of Vidarbha are even demanding that the finance minister should come out with a white paper on the money that will go to different tehsils in each district under the waiver. This will expose the anomaly that the waiver intentionally or unintentionally is going to benefit the sugarcane belt besides those growing horticultural crops, Jaywanthia added.
SEEDS The Budget has announced a 150 per cent weighted average rebate on seed research and development. The measures # The finance minister has announced a 150 per cent weighted average rebate on research and development (R&D) of seeds. The context # Seeds are a key input and determines crop productivity, and improved seed quality alone can contribute about 25 per cent to the yield. Seed characteristics such as germination, high seedling vigour, and genetic purity are as important as other inputs. Thus, while fertilisers and water are important, the crucial input for increasing productivity are superior quality seeds. The impact # R K Sinha, executive director, All India Crop Biotech Association (AICBA) , the association of Indian agriculture biotech companies, said, "This is a welcome move.' Unfortunately, the FM has not granted infrastructure status to the seed industry which would have encouraged investments in the modernisation of seed processing plants, seed treatment and development facilities, godowns for storage, as well as transport and distribution. This, along with the creation of a dedicated Seed and Technology Development Fund, could have given clear signals to global and domestic industry to invest in agriculture. The industry hopes that during the year the government will "grant infrastructure status to the seed industry' and set up a "dedicated Seed Technology and Development Fund' for the long-term benefit of the farmer, industry, and economy.
PAPER The industry may not pass on the excise duty cuts on writing, printing and packing paper to consumers. The measures # The excise duty on writing, printing and packing paper has been reduced from 12 to 8 per cent. Further, full exemption from excise has been provided for paper and paper products (for up to 3,500 tonnes) produced from non-conventional raw materials. The context # The paper consumption has been growing at 8-9 per cent in tune with the gross domestic product (GDP) growth. The 20 per cent increase in allocation towards education would further fuel the demand. However, paper prices have been rising continuously owing to a cost push from the rising prices of pulp and other raw materials. The impact # While welcoming the move to reduce excise duty, the paper industry remained non-committal on any price cut. "There has been an overall cost push in the raw materials such as pulp, coal, etc. The excise cut will help us absorb some of the cost push. However, a call on passing on the benefit of this cut will be taken only next week,' said R R Vederah, managing director, Bilt, the country's largest paper producer. Shares of paper companies, however, had a depressing day at the Bombay Stock Exchange. The share price of Bilt closed at Rs 136.90, down 1.55 per cent over the previous close. J K Paper's share closed at Rs 39.90, down 1.24 per cent over the previous day. "The 20 per cent increase in allocation towards education will fuel demand and induce further investments. I do not expect an immediate impact of the excise reduction on consumers and paper prices will depend on the overall demand-supply scenario,' said Pradeep Dobhale, president, Indian Paper Manufacturers' Association and chief executive of ITC's paper division.
