The Praful Bidwai Column
It's not a farmer's budget!
CONTRARY to media hype, Finance Minister P Chidambaram's latest budget does not set a new direction. Nor does it address the huge imbalances in India's growth pattern. The decision to write off farmers' loans worth Rs 60,000 crores is a belated acknowledgement of the grave agrarian crisis, which has driven 150,000 farmers to suicide in a decade.
The write-off is welcome. But it's not enough.
Sounds uncharitable? Consider that the problem with the Indian economy hasn't recently been lack of growth. It's lack of equity -- income inequalities, and sectoral and regional disparities. The United Progressive Alliance's last full budget was to correct this. It doesn't.
The much-touted Rs 60,000-crore debt write-off has disarmed the Bharatiya Janata Party. This is undoubtedly the largest such write-off. But it pales into insignificance beside the various exemptions, incentives and concessions provided to corporate taxpayers and rich individuals.
Last year, the government wrote off taxes/duties worth a colossal Rs 2.79 lakh crores in this manner! This mind-boggling amount is more than four-and-a-half times the one-time relief for farmers, and equals one-half of all taxes collected.
It includes Rs 1.48 lakh crores in customs duty exemptions, Rs 58,655 crores in corporate-tax concessions, and over Rs 38,000 crores in income-tax exemptions.
Yet, there was no furore or accusation of scandal over this -- a terrible comment on India's economic discourse!
Now, full waiver only applies to loans from commercial banks, regional rural banks and cooperatives by farmers owning 2 hectares (5 acres) or less. But, according to official surveys, half such farmers borrow from local moneylenders. As do 77 percent of marginal farmers.
So a majority of farmers are excluded from the waiver.
Second, only the loans of farmers owning 2 ha or less are written off. There's 25% debt relief to bigger landholders provided they repay the remaining 75 percent. But it's unrealistic, if not mean, to expect highly indebted farmers to repay that 75 percent. They wouldn't have borrowed the money unless they were desperate in the first place.
Third, a large proportion of India's heavily indebted farmers cultivate un-irrigated, low-quality plots bigger than 2 ha. This is true, for instance, of Vidarbha's "suicide belt." A farmer owning 5 ha there is often distressed to the point of suicide. He/she stands to get virtually no relief from the budget.
A far better alternative would have been to write off loans in inverse proportion to holdings and yields -- say, Rs 30-50,000 for the poorest, Rs 15-30,000 for the less poor, and a smaller sum for others.
This would also have taken some of the burden off the nationalised banks, which are unlikely to be fully compensated for the write-off. It's in nobody's interest to weaken public banks -- unless the hidden agenda is to set them up for privatisation.
In contrast to his miserly approach to farmers is Mr. Chidambaram's generosity to rich income tax-payers, who number 25 to 30 million. Their taxes have been slashed to a point where they are the lowest in Independent India, and among the world's lowest.
A person earning Rs 5 lakhs -- belonging to the top 2% of the population -- need pay no tax if s/he uses all available exemptions. And someone who earns Rs 10 lakhs -- there are only 3 lakh such Indians, comprising one-hundredth of the population -- will only pay a tax of Rs 2.7 lakhs.
By contrast, most Western Europeans in a comparable bracket would pay 50% to 70%, and the Japanese even more. And India is a poor country, which sorely needs to raise resources by progressively taxing the top 20 percent of the population to provide public services.
The tax regime has, thus, become even more regressive. To match this, Mr. Chidambaram has reduced taxes on cars, two-wheelers, air-conditioners, refrigerators, etc. This will encourage profligate consumption, and bloat GDP -- thus creating a growth bubble, while adding to greenhouse emissions.
Mr Chidambaram's failure is glaring in six areas to which the UPA's Common Minimum Programme gives priority; the public distribution system, National Rural Employment Guarantee Act, health, education, social security, and reduction of regional disparities.
Instead of substantially expanding the PDS, he has raised its allocation by a paltry 3.5 percent. Forgotten is the goal of universalising it. The NREGA's district-wise coverage has been doubled, but its allocation raised by just 14 percent.
The budget's health outlay is 17 percent higher than last year's. But an annual increase of 35% is needed over several years to raise public health-spending from the present miserable 0.9% of GDP to the 3% target.
The 20% increase in the education budget might seem impressive, but the bulk of it goes to higher education, up to 90%, and to the proposed stream of 6,000 "high-quality" model schools.
What India needs most of all is primary education and universalisation of school access for all children under the 86th Constitutional amendment on the Right to Education. This isn't forthcoming.
As for social security, Mr. Chidambaram has ignored the thoughtful recommendations of the Parliamentary standing committee to give rights and entitlements to unorganised sector workers, not flimsy schemes to which they contribute a premium. He has merely repackaged existing schemes for health insurance and passed them off as new.
The UPA had promised to invest substantially in backward areas and states, and take urgent measures to reduce regional and sub-regional disparities in infrastructure, agriculture, industry and social development, which are now acquiring explosive dimensions -- as the growth of Naxalism shows.
The budget betrays this promise.
However, the budget has raised military spending by 10 percent at a time when the Defence Ministry is returning about Rs 4,000 crores unspent year after year. Including pensions, the defence allocation now stands at Rs 121,160 crores -- compared to a mere Rs 34,300 crores for education.
Like the big tax breaks for the rich, this does not speak of balanced or healthy public priorities.
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