BUDGET 2011-12 – A BIG CHALLENGE
B. Yerram Raju*
The FM’s biggest challenge for formulating the 2011-12 Budget is not so much the revenue and expenditure projections as the direction in the wake of highest food inflation rocking the growth boat that has been the cynosure of the global investors. Agriculture, though reducing in its overall share of GDP, is still the prime mover of the economy. The rising food inflation, the unabating suicides of farmers in a few important patches of the economy, lagging productivity despite a quinquennial growth in overall production of most of the important crops have pointed out more the inefficient distribution channels than the supply side issues. Government could not respond adequately to these issues well in time. Elections to two important States are on the anvil. Congress governments in States, particularly, Andhra Pradesh is threatening the political stability not to speak of all pervading corruption. The focus of my article is therefore on Agriculture sector Budget that requires special dispensation.
Based on the Mid Term Appraisal of the XI Five Year Plan, agriculture sector has only recorded the most unimpressive growth.
Growth in GDP at factor cost 1999-2000 prices
Eleventh Plan Agriculture and Total economy
2007-08 4.7 9.2
2008-09 1.6 6.7
2009-10 R E 0.2 7.4
over Triennium 2004-05 3.4 8.6
Average (2007-10) 2.2 7.7
The slow down has been attributed to a number of factors that included the lack of a breakthrough in technology of major crops ; low replacement rate of seeds/varieties; slow growth or stagnation in area under irrigation and fertiliser use, decline in power supply to agriculture, and slowdown in diversification. It was assumed that the large gap between attainable level of productivity achieved in frontline demonstration plots and actual productivity at farm level offers a ready option to raise productivity and production by pushing use of quality seed, fertiliser, and water (irrigation). XI Plan only made only pious expressions to reverse these trends. World Bank in its Report (IEG 2010) reaffirmed that sustainable agricultural growth is critical to poverty reduction. It has provided enough data from the Brazil, China and India to show that a percentage growth in agriculture in South Asia led to 0.48% reduction in the number of poor in those nations.
In the wake of rising labour costs that today account for 30-40 percent of the total factor costs in agriculture, farmers are increasingly resorting to mechanization and this has been reflected in the number of threshers, weedicides, harvesters and harvester-combines sold during the year. Technology’s importance is realized more today than ever. Therefore, the direction in which the Budget should move is in the areas of assured input supplies, investments in Research and Development, incentive for farmers to stay on the farms and removal of hardships and stress and relief from the calamities when confronted. It has been proved that the farmers have not benefited to the expected degree through the Loan write-offs and increased flow of short term institutional credit. Delivery mechanisms of all the announced incentive packages leave much to be desired.
Central Plan outlay for Agriculture and allied sectors
(Rs. in crore)
Total outlay Agri sector share
X Plan (2002-07) Rs 9,45,328.00 Rs.26,108.00 (2.4 per cent)
XI Plan (2007-12) Rs. 21,56,571.00 Rs.50,924.00 (2.4 per cent)
The allocation to agriculture and allied sectors in Centre’s Plan has been substantially increased from Rs. 21,068 crore in the Tenth Plan to Rs. 50,924 crore in the Eleventh Plan while retaining the over all share undisturbed.
SET UP NEW FUNDS AND IMPROVE DISTRIBUTION CHANNELS:
As an astute and the most experienced Finance Minister he should be looking for some out of the box solutions as extraordinary problems require extraordinary solutions.
One cannot keep on asking for writing off credit and yet ask for more credit to flow. This is responsible for driving the farmers to private money lenders who lent at usurious rates and caused the suicides. Instead, what I would suggest is a Natural Calamity Relief Fund, Farmer Innovation Fund, Farming Technology Fund and Market Stabilisation Fund.
Investment Credit in the farm sector has been making a very slow movement and this has to be accelerated so that more funds would flow for investments in Research and Technology, organic farming, bio-technology in agriculture, soil regeneration, efficient water management and the like. Working capital loans in farm sector that the FM has been generously asking for from the Banks have a knack of camouflaging and do not result in asset restructuring and improving productivity although they should continue to flow consistent with the investment credit. Therefore, I would venture to suggest the following:
Institutional Loans to be made available at 4% p.a as suggested by Dr Swaminathan. The difference in interest which the Banks expect from such lending and this 4% should come from Interest Compensation Fund flowing as budgetary support from both the Center and State Governments in 50:50 share.
Redirect the Rural Infrastructure Development Fund to move into one of the four funds I suggested above. Each of these Funds should be managed by NABARD with State Specific allocations providing for flexibility in drawal depending on the situation arising in the respective State and the Fund MANAGMENT Committee of NABARD should have Farmer Association Representative and at least Two Economists of repute from the State to be members. The Committees should be set up at the State level.
I am not venturing to suggest the size of the funds as this would depend upon FM’s overall resource position agenda. It is important that the country should move away from the traditional way of allocations to this important sector.
*The Author is an Economist and Member of the Expert Committee on Cooperative Banking, Government of Andhra Pradesh. The Views are personal. Can be reached at firstname.lastname@example.org