The Hindu Business Line : Overdue focus on agriculture

Does the Budget live up to its mission statement of providing a conducive investment climate and managing the macro-economy so that “our growth story is not affected”? Weighing all the odds, yes!

B. S. Raghavan

There, the Finance Minister, Mr P. Chidambaram, has served a Budget that has in it ingredients to suit every taste. The individual tax-payers will be singing his praise for jacking up the exemption limits. The business class, though disappointed at the retention of the corporate tax and surcharge as before, will applaud the boost given to manufacturing by a number of concessions in indirect taxes.

Auto and pharma industries, in particular, will be happy with the reliefs coming their way. Defence forces will welcome the 10 per cent increase in the allocation taking it from Rs 96,000 crore to Rs 1,05,600 crore.

Small service providers, workers in the organised sector, farmers in debt, the rural unemployed Self Help Groups, women and children, scheduled castes and scheduled tribes, socially and economically backward classes, minorities, foreign investors – everybody will find some thing in the Budget to cheer him.

The Finance Minister had obviously been put in a salubrious mood by the tax payers thanks to whom the collection in the coffers in 2007-08 has scaled unprecedented heights, taking the tax-GDP ratio from the estimated 11.8 to 12.5. It has helped contain revenue and fiscal deficits at 1.4 per cent and 3.1 per cent respectively. He must have also been buoyed up by the spurt in gross capital formation from 10.2 per cent in 2003-04 to 12.5 per cent last year, leading to a jump of 36 per cent both in investment and savings. These trends will undoubtedly push the economy further forward.

The disturbing part is that just as in the case of the Hindu rate of growth of three per cent, India’s policy makers are currently stuck in the groove of nine per cent or thereabouts. In the light of the demands and needs of burgeoning population coupled with the revolution of rising expectations round the corner, India cannot do with less than 10-15 per cent growth. How prepared are India’s policy planners to fulfil this requirement in the next five years or so?

Downside risks

There are also, as Mr Chidambaram himself acknowledged, downside risks such as continued recession in the US affecting the demand for goods and services, possible surge in prices of oil, commodities and food grains, shortfalls in the performance of various sectors, especially in the realm of exports, and inflationary pressures.

The expectation about maintenance of inflation within a predictable range as a concomitant of price stability will come to naught unless State Governments are restrained from squandering funds on freebies which run counter to canons of prudent management of the nation’s finances. The Budget speech conveniently bypasses all these factors which, if ignored, will vitiate the prospects of growth on desired lines.

Mr Chidambaram rightly refers to the need to moderate capital flows which may otherwise aggravate inflationary pressures. Strangely enough, in a speech that went into minutiae such as making provisions of Rs 5 crore and Rs 10 crore and setting up 12 Central universities, there was no mention of the exact remedial action he has in mind on this count.

At least a third of India’s foreign exchange reserve of close to $300 billion can be put to use in such sectors as infrastructure to facilitate faster economic growth without sacrificing the three cardinal safeguards of liquidity, adequacy and safety. It is high time that, drawing on lessons from the experiences of forex reserve management by China, Singapore and South Korea, a viable scheme that balances risks with benefits is put into effect in India also. The Finance Minister has chosen to remain silent on some positive steps that are within his power to take and that can push revenue collection to still higher magnitudes.

The efficacy of tax administration can be raised to an enormous extent by streamlining and simplifying tax laws, broadening the base of tax assesses and doing away with such of those tax exemptions (now amounting to nearly Rs 2,50,000 crore in terms of total revenue forgone) as have outlived their purpose. There was not a word in the Budget speech on these worthwhile measures.

Vital thrust area

Want of effort by the Central and State Governments to properly channel the huge amounts spent on subsidies towards the poor and vulnerable sections of the population can act as yet another brake on economic growth. The Finance Minister did, of course, refer to targeting of subsidies to the deserving, but only fleetingly, and without spelling out the details of any specific proposal for achieving it in a time-bound manner.

In a Budget which tries to be all things to all persons, Mr Chidambaram has done exceedingly well to turn the nation’s attention to a thrust area which is a matter of vital concern. A country which had attained self-sufficiency in food, and built up more than adequate buffer stocks to run its public distribution system as well as to tide over emergencies, and was also exporting food grains, is now inexplicably facing a grave crisis on this front with two farmers committing suicide every hour in 2007.

Debt Relief

As he movingly put it, Mr Chidambaram has only discharged the nation’s debt to the farmers by his debt waiver and debt relief programme.

The urban elite, who would be scared of spending an hour in a village, are apt to carp at the four crore farmers being relieved of the excruciating burden of Rs 60,000 crore. They must remember that no amount of efforts and resources would be too much to ward off the grievous decline in agricultural production and the consequent food and nutrition insecurity which has often been a precursor to violence and upheavals.

Also, the amount is a piffle compared to the non-performing assets of the scheduled commercial banks which in 2006-07 recovered and wrote off Rs 26,243 crore, while adding Rs 26,211 crore as NPAs during the same year and in which, at one time, 11,000 individual accounts had piled up bad and unrecoverable debt of Rs 40,000 crore.

The mission statement that the Finance Minister laid down for the Budget is that it would provide a conducive investment climate and manage the macro-economy to facilitate non-inflationary growth so that “our growth story is not affected”. Does it live up to the mission? Taking the rough with the smooth, and in all probability, yes!