According to the National Sample Survey, average annual income of median farmers, net of production costs, is currently around Rs 20,000.
Finance minister Arun Jaitley has presented this government’s last substantial Budget before the next general elections in 2019. In the best of circumstances, the job of the FM is not easy. In the last years of Mughal rule there used to be a popular saying: yak anaar, sad bimaar (one pomegranate, a hundred ill people)! There are so many competing constituencies, that it is near impossible, given that resources are not elastic, to please them all. The FM deserves to be congratulated for making the heroic effort to please most constituencies, and if he has, as some critics believe, fallen flat between several stools in doing so, he must at least be given the credit for having tried.
The Budget does, however, raise some important queries, which, although I am not an economist, I would be happy to receive a clarification on. First, the government has claimed that this Budget has especially kept in mind ameliorative measures for the farmers. Given rampant agrarian distress, this is a laudable objective. But to what extent will this intent have the desired impact is debatable. In February 2015, this government had given an affidavit to the Supreme Court that, in spite of the BJP’s specific poll promise in 2014, it would not be possible to increase the minimum support price (MSP) to 50 per cent over input costs for farmers, as this would distort the market. Now, three years later, the FM has said that the government will give 50 per cent over input costs to farmers.
But the key question here is how will the government compute costs? Will costs be computed on the basis of the M.S. Swaminathan report, which calculates costs to include not only what is spent on fertilisers, seeds, machinery and irrigation, but also labour, land, rents and interest on capital investment? If the criteria to compute costs is arbitrarily changed then the delivery will neither match the promise made in 2014 nor the expectation and needs of farmers. It is true that there has been a marginal increase in MSP last year, but this was accompanied by what appear to be some very curious and irrational economic decisions. For instance, with enhanced MSP, the production of pulses grew substantially. But just when the farmer was in a position to earn from what he produced, the government decided to import pulses in large amounts, leading to a crash in market prices. The essential point is that after two successive years of drought, and with farmers committing suicide in record numbers, farmers need to be guaranteed with security of income. I don’t believe that this has been assured unless the calculation of MSP is transparently clarified.
Second, one of the Budget’s key instrumentalities to help farmers is to increase the credit available to them. Again, in normal circumstances, this would be a positive move. However, in current circumstances, half of all farmers are already under a per capita debt of Rs 47,000. How can they be expected to take more credit when so many of them are committing suicide because they cannot repay what they have already borrowed? Besides, most farmers are at the subsistence level. It is a moot point whether they even have the requisite legal collateral to avail of such loans. And what impact increased lending in this form will have on banks already overburdened by NPAs, is another matter.
Third, the FM repeated in his Budget speech the goal, articulated earlier, that farmers’ income would be doubled by 2022. But although the goal sounds impressive, in reality it means very little unless much more is done. According to the National Sample Survey, average annual income of median farmers, net of production costs, is currently around Rs 20,000. If in five years this is doubled, it would mean they would earn Rs 40,000 or so, which amounts to Rs 3,500 a month, and not even that if inflation is factored in.
A fourth question relates to jobs. Has the Budget created the incentives for a substantial growth in economic productivity that could translate into a quantum increase in jobs? While we have improved our standing in the World Bank Ease of Doing Business report, we are still — as the report itself says — unacceptably lagging behind in key sectors. For instance, we are at 156 out of 190 countries in the vital area of starting a business, and at 181 in registering a property. The government claims — on the basis of a controversial recent report by two economists — that it has created seven million jobs in the formal sector of the economy. This hardly appears to be realistic. Mudra loans may have helped some entrepreneurs, but the average loan offtake under this scheme is around Rs 50,000 per beneficiary, hardly sufficient to start or sustain a new business. Moreover, according to most economists, one job created in the formal sector leads to two in the informal sector. Have we then created 21 million jobs? On an average, there are 12 to 15 million young people in the job market. Are we then in a position of overemployment?
Fifth, it was the expectation of many least developed states, that the Budget would have special measures for their development. Bihar has been asking, on very reasoned grounds, the granting of special category status. But such expectations were left unfulfilled.
And finally, the ambitious health coverage scheme up to Rs 5 lakhs each to 50 crore people, is an audacious one, but where is the money for its implementation going to come from? The Budget certainly does not indicate this. Apart from the cash component, there will also be huge infrastructure costs. Currently, our healthcare system is short of doctors by 72 per cent; we have only 50 per cent of the nurses we need and laboratory technicians are 80 per cent less than required. The allocation to public health has gone up only marginally, and in fact, as a percentage of the Budget is less than that of last year. We wish the FM well, but for this he may actually need a magic wand!