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 2009-
10, 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

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