Post Budget Blues and Food Insecurities Pranab Mukherjee, Union Minister for Finance, presented a budget hailed as best budget for fiscal 2010-11 by the industry and the stock markets have given salutary verdict. Opposition walked out of the parliament on the issue of price rise of petroleum products to register their protest and has been still fighting against food inflation and wrong policies on the agricultural front. How can we address this backlash on agricultural front? Bench Marks of 13th Finance Commission: Prima facie the budget seemed to lack any punch for growth. However, later in his interview Pranab Mukherjee revealed the basic strategy of following the recommendations of the 13th Finance Commission on keeping the bench marks set for fiscal deficit. So in a way it was a reverse engineered budget. To keep the deficit in check it was essential to limit the government expenditure and therefore even in flagship program of NREGA there was nominal increase of Rs. 400 crores in outlay. This represents a commitment to fiscal prudence rather than to populism resorted last year. This was not to please the Indian gallery. It was more for international financial institutions to instill confidence in them about intentions to curb fiscal profligacy. This is good economics as long as it is not bypassed during the year through ad hoc approval beyond the realms of the budget. The 13th Finance Commission has put in place the bench marks for fiscal deficit of 5.5% for 2010-11 and down to 4.1% by 2012-13. So if the government is serious about following this benchmark in future it has no options but to increase the revenue income since there would be a ever tightening cap on revenue expenditure. So as the elections are held in states in next couple of years, the popular schemes or the largesse would have to be out of this tight purse. If we revert to compliance with FRBM targets set out by Finance Commission it would encourage states also to fall in line with better monitoring and controls on states’ budgets also. Stop Leakages & Improve Monitoring: If the revenue incomes have to increase in future the only way is to improve collections and stop leakages. Better integrated systems would be essential
for accuracy of data and information. In my comments on budget for 200910, I had suggested the need for prevention of leakages so that the expenditure can be contained within budget. I had also stressed on the need to improve delivery mechanisms to ensure that rupee spent by the government reaches the intended beneficiary in a wholesome manner instead of estimated level of about 10-15 paise. Pranab Mukherjee has assured in his interview that proposed Unique Identity Project would be used to reduce the leakages in different social schemes. I sincerely hope that this would happen, justifying benefits of the Unique ID project. If it does, Pranab Mukherjee would have left a mark on project management & monitoring systems. Price Increase of Petroleum Products: In this budget agriculture & petroleum product have stood out for different reasons. The budget was used to increase the prices of petroleum products. Though it is justified, the timing was bad with TMC & DMK joining opposition ranks in protests demanding a roll back. We have been more used to roll backs in the past and the government should stand firm on any decision it takes to show the spine. NDA government had rightly cast away the administered price mechanism for petro-products and now UPA finds it difficult to every time push the prices in line with market realities. It is easy to fall in line with market prices when they are low. UPA should not lose time if it intends to keep up with the fiscal deficit bench marks in future. However, the government would have to manage the inflationary pressures better while doing so. So far the efforts for taming inflation have not yielded results for any comforts. The prices of commodities were talked up by the politicians and now they are trying to talk down the trend after filling their coffers. While there have been shortages of commodities like sugar, pulses etc. due to poor rains, poor anticipation & planning or rather planned apathy has been a blot on the performance of the UPA government. Wanted Full Time Agriculture Minister: While we believe in market forces to take care of demand and supply side economics, the interventions by the government become necessary to protect the interest of masses. Some unscrupulous decision makers have calibrated the interventions to their advantage. To cover these failures, Pranab
Mukherjee highlighted, in his interview, the budget allocation of Rs. 400 crores for transfer of agricultural technology from southern & western states to eastern states for better farming techniques. Does it take 60 years to do so or think about it? Some of the initiatives on micro irrigation and use of plasti culture to conserve water should have been pushed harder for wider coverage for better yield. But, unfortunately, we can’t grow sugar cane or pulses on the cricket pitches. We need a full time agriculture minister of the stature of M.S.Swaminathan for a real boost to the agriculture sector. Agricultural sector has been most neglected one and deserves better governance. What is the point in permitting exports of agro commodities if demand in domestic market is outstripping production? Imports to bridge the gaps should have been initiated well in advance to manage the price front. One year of draught has exposed our vulnerability to vagaries of the monsoon. Our food stocks must take care of two consecutive poor monsoons without creating the situation of 2009. I am not sure about the role of Environment & Forest Minister, Jairam Ramesh, regarding policy decisions on GM or Bt. foods. It should be in the domain of Agriculture Minister. We have agriculture minister looking after sports, environment minister looking after GM foods, and Chemicals minister deciding on fertilizers resulting in chaotic situations. Life line of the Nation: Railways or Agriculture? It is time that we realize that 60% population depends on agriculture and we need to give full focus on this sector to increase its contribution to GDP from currently around 17 % to 25-30% in next five years as it used to be 20 years ago. No doubt the level of GDP has grown to a higher base due to growth of the service sector, but so has the population demanding more agro products for consumption. Before we even realize, we are moving very fast from export led growth model to a consumption led growth. Therefore agriculture, as means of survival for more than half the population, deserves a separately focused budget. Reforms of this sector are overdue and there is an urgent need to facilitate integrated development with better linkages. I always wonder if Railways are more important than agriculture when it comes to annual budget. Railways budget can be merged with the
General Budget since in any case it has become a plank for developing the individual states of the railway minister for last ten years or so. Integrated Rural Development Budget: For next ten years, the government needs to focus more on agriculture which today is lagging behind in terms of growth rate compared to its true potential in country’s GDP basket. If we combine agriculture with fertilizers, micro irrigation, rural development, agro processing industries, bio-technology (GM foods) and micro finance, it becomes a very large chunk of national endeavor for betterment of the people. They are all interlinked activities with input-output relationships and need to be well integrated for maximum ripple effect for all round growth of “Rural India” with Integrated Rural Development Budget! May be that will incite our politicians to think differently. I am not advocating an urban- rural divide. I am advocating ICU care of a neglected sector for healthy development of half the country which the industry will not grudge. That is when the union budget will truly do justice to Bharat and not just India. Vijay M. Deshpande Corporate Advisor, Strategic Management Initiative, Pune March 5, 2010 Scroll down for my other blogs Or Visit www.strami.com