Drought of Public Spending
The Finance Minister’s claims this year of producing a “pro-farmer”, “pro-poor” Budget were promptly exposed by several commentators, but the official hype had by then served its purpose of packaging the Budget.
In the following article, which will appear in instalments, we place the agriculture-related allocations in the Budget in the context of the state of India’s agriculture today. We make the following points:
(i) As many others have noted, the Budget shows no increase in allocations for agriculture, as a percentage of Gross Domestic Product (GDP). Allocations for rural employment, as a percentage of GDP, have declined to less than 0.3 per cent of GDP.
The Prime Minister’s avowed aim of “doubling” farmer income in five years is meaningless if doubling is meant in nominal terms (i.e., without discounting for inflation); and, given the miserly budgetary allocations, impossible if meant in real terms.
(ii) After the NDA government (1999-2004) ushered in an acute agrarian depression, the post-2004 period saw a spell of rise in agricultural growth, due to two factors. Firstly, the UPA government, which owed its election to peasant anger with the NDA, introduced a set of policies which revived agriculture and rural employment to some extent. Secondly, a global economic bubble lifted the prices of agricultural commodities worldwide (a part of which raised returns to cultivators), and increased demand for unskilled labour in the construction industry (raising urban and rural wages, which are now an important component of the income of a peasant household).
(iii) Even during this period of higher growth, however, the crisis of the peasantry did not get resolved, but was merely alleviated for some time and to some extent. The vast majority of the peasantry continued to eke out a precarious existence, and were deep in debt, a sizeable share of which debt was owed to moneylenders and traders.
As the UPA-II government went into fiscal deficit-cutting (i.e., demand-suppressing) mode after 2010-11, and as the global commodity prices boom ended, negative trends in India’s agriculture revived – declining investment, slowing rates of growth, worsening terms of trade, falling real wages, and rising peasant suicides. These negative trends were carried forward and intensified under the Modi regime.
As the Government now reduces its overall expenditure/GDP ratio in the midst of a recession, it further suppresses aggregate demand; this in turn depresses already depressed peasant incomes. These demand-suppressing policies indeed echo the colonial policies of the 1930s, which drained the meagre savings of the peasantry into Britain’s gold reserves. In this context, a few increased budgetary allocations for individual heads of agriculture, and tall talk of doubling farmer incomes, are a mockery.
(iv) Contrary to the Finance Minister’s claims, the opening up of marketing of food products to 100 per cent foreign direct investment (FDI), announced in the Budget speech, will not help small producers of vegetables and fruit. Wild claims of very large waste in India’s vegetable and fruit supply chain have turned out to be false, and so too the assertion that corporate investment would eliminate such waste. Even moderate public sector investments and interventions in the horticulture sector could have yielded benefits for both small producers and consumers; but this course is ruled out, since the Government’s priority is to create business opportunities for foreign and other private corporate investors.
Large-scale foreign investment in the sector may take time; it awaits a comprehensive and explicit policy of Government non-intervention in agriculture. This demand of foreign investors, and the actual large-scale entry of FDI into the sector, would have very severe negative effects, among them the displacement of small peasants.
(v) The Government is trumpeting its new crop insurance scheme. While the new scheme’s provisions are an improvement over the existing miserable scheme, and it is likely that the Government will massively expand coverage under the new scheme, the real point lies elsewhere. That is, the scheme is to prepare the ground for the Government in future to wash its hands of responsibility for providing relief and compensation to calamity-affected cultivators. In other words, it is part of a broader policy of State withdrawal and financialisation of social claims, which can be found with respect to other sectors as well, such as health.
(vi) Once we see through the hype of ‘farmer-friendliness’ surrounding this Budget, we find there is no real thrust given to public sector investment in agriculture. Even establishment economists accept that public sector investment crowds in private investment in agriculture; that investment in agriculture accelerates output growth and raises productivity; and that improved agricultural output is the most effective way to reduce poverty. However, there has been a steady decline in the share of the public sector in agricultural investment.
Climate change, the effects of which appear to already be upon us, and which is certain to intensify, lends added urgency to the need for public sector investment. Only the most helpless intellectual slaves of the free market ideology could imagine that private investors can sufficiently prepare the peasantry for the impending changes.
(vii) Ultimately, all ruling class programmes to address the agrarian crisis, even those variant strains that give importance to public spending, separate the question of repairing “agriculture” from question of addressing the crisis of the peasantry that works it. They ignore the scope for the peasantry as an agent for the transformation of agriculture; indeed the dominant strain treats the peasantry as the main obstacle for such a transformation.
Nor should one expect otherwise, given the transformation they are seeking. It is up to those seeking a different form of addressing the agrarian crisis to take as their starting point the peasantry, particularly the small, marginal and landless, and locate the obstacles to the release of their productive, organisational, collective and transformational capacities.
Sudden love for the poor
The Modi government’s professions of love for the poor farmer are one more sign that that the BJP’s political plans have gone awry. When the Modi government came to power, it presented itself as the champion of the ‘aspirational’ classes; growth would solve problems such as poverty. Arun Jaitley’s first Budget speech, in July 2014, began by stridently declaring:
The people of India have decisively voted for a change. The verdict represents the exasperation of the people with the status-quo. India unhesitatingly desires to grow. Those living below the poverty line are anxious to free themselves from the curse of poverty. Those who have got an opportunity to emerge from the difficult challenges have become aspirational. They now want to be a part of the neo middle class.
Thus Modi declared famously that he was keeping the National Rural Employment Guarantee Scheme alive merely to highlight the Congress’s failure to develop the country:
My [political] understanding tells me never to remove MGNREGA because it is an example of six decades of failure of the Congress party; it has to pay people to dig ditches.
The contrast with the latest (2016-17) Budget speech could not be sharper. Jaitley has now rediscovered the ‘downtrodden’, i.e., those on whom his government has been busy treading for the past two years:
We believe in the principle that money with the Government belongs to the people and we have the sacred responsibility to spend it prudently and wisely for the welfare of our people, especially the poor and the downtrodden…. The priority of our Government is clearly to provide additional resources for vulnerable sections, rural areas and social and physical infrastructure creation.
This sudden shift of the focus of concern, from the ‘aspirational’ to the ‘vulnerable’, has been occasioned by the widespread discontent the Modi regime is facing from various sections of the people, particularly the peasantry. But it is merely a display of concern.
Mirage of increased allocations
As can be seen from Table 1, total allocations for agriculture, rural development and water resources were a meagre 0.9 per cent of GDP in 2015-16; the budgeted figure for 2016-17 is also just 0.9 per cent of GDP. The same is true when expenditure on the Department of Fertilisers – mainly fertiliser subsidy – is added (in fact, there is a slight reduction in the fertiliser subsidy).
There is some deceptive shuffling of allocations; for example, whereas earlier, the subsidy provided from the Budget for short term loans to farmers was given through the Ministry of Finance, it is now to be given through the Ministry of Agriculture. Hence the budget of the latter has swelled in 2016-17, while the corresponding provision in the Ministry of Finance has disappeared.[1]
It is also revealing to compare the Budget figures for 2014-15 with the Actuals (i.e., how much was actually spent) for the same year. In the course of 2014-15, spending on agriculture, rural development and water resources was slashed by 20 per cent in order to meet fiscal deficit reduction targets. At the same time, procurement prices for the main publicly procured crops were virtually frozen, and states considering topping up the Centre’s procurement prices with state-level bonuses were warned that in that case they would have to bear the entire burden of subsidy in their state. (This blatantly anti-peasant step was praised in the Economic Survey 2014-15 as an effective inflation control measure.) That is, the new Government took a series of contractionary measures.
These contractionary measures were taken during a drought year, with a 12 per cent shortfall in rainfall; and amid a global crash in the prices of agricultural commodities, which caused a crash in the prices of many crops in India as well. The brutal cut in Central Government spending on agriculture during 2014-15 thus played a major role in intensifying the agrarian crisis.
Thereafter, in 2015-16, the Central Government’s actual spending did exceed its budgeted figure, but by a meagre 5.9 per cent, despite emergency conditions prevailing in different states. To come forth with a band-aid in 2016-17, after spending two years turning the knife, is hypocritical.
Droughts in the last two years, combined with unseasonal rain/hail in one year, are the most glaring and immediate problem. The area under several crops which are largely grown on unirrigated land, such as pulses, coarse grains, and oilseeds, declined sharply in 2014-15. Since then a second year of drought has followed. The post-monsoon (October-December 2015) rains too were below normal. Foodgrain and oilseeds production in 2015-16 is estimated to decline by 0.5 per cent and 4.1 per cent over the already reduced levels of 2014-15. Rural sales of fast-moving consumer goods, two-wheelers, and tractors have fallen. There are reports of widespread hunger, abandonment of livestock and distress migration in search of work. Wages of agricultural labour are falling in real terms; moreover, there is no work.
Shrinking MGNREGA
The Economic Survey notes that this is only the fourth instance of back-to-back droughts since 1901. Such a grave situation called for a correspondingly massive response from the State to meet minimum human and animal needs, and protect livelihoods. Instead, the response was miserly and callous. MGNREGA employment had in fact already been reduced sharply under the UPA, from 2.8 billion person-days in 2009-10 to 2.2 billion person-days in 2013-14. The Modi regime cut it further to 1.66 billion person-days during the drought year 2014-15.
Finally, during the course of 2015-16, in the face of extreme rural distress and the BJP’s electoral setbacks, the Government was forced to raise MGNREGA employment, as can be seen from Chart 1. But even so, the final figure of employment for 2015-16 was under 2.3 billion person-days – 273 million person-days below the figure for 2010-11, which was not a drought year.
Further, the figure budgeted for 2016-17 appears to be 7 per cent lower than the final figure for 2015-16.[2] After accounting for inflation, not to mention wage payment arrears, the increase is negative, as indicated by the projected fall in person-days employment to be generated in 2016-17. It appears that the Government is counting on a good monsoon in 2016-17 to wash away the need for rural employment generation, so that it can return to its trajectory of winding down MGNREGA.
It is worth noting that even the increased allocation for MGNREGA budgeted for 2016-17 is only 0.27 per cent of projected GDP. By comparison, Central spending on rural employment schemes even before the MGNREGA was higher as a percentage of GDP: for example, in 1993-94 spending on the Jawahar Rozgar Yojana was 0.37 per cent of GDP.
The ‘doubling’ claim
Recently, the Prime Minister made the vague declaration – “Let us aim to double the income of farmers by 2022” (note the careful qualification: “aim”). No clarification was issued to shed light on what exactly he meant. At any rate, his declaration is quite meaningless. A member of the official NITI Aayog, Bibek Debroy, clarified in a television interview that the doubling was meant in nominal, not real, terms, i.e, not after discounting for inflation. In such terms incomes could double anyway, even without “aiming”. For example, GDP in agriculture and allied sectors rose from Rs 5,65,426 crore in 2004-05 to Rs 10,83,514 crore in 2009-10, even as employment in the sector fell from 268.6 million to 244.9 million; in other words, the per worker GDP in agriculture more than doubled in nominal terms. However, in real terms, the rise was only 28 per cent over the five-year period.
If the Prime Minister was talking of doubling incomes in real terms, which is a very tall order, then it is obvious that maintaining budgetary expenditures on agriculture at the same level of GDP, and reducing aggregate demand by cutting the fiscal deficit in the midst of a recession, will not double real incomes of farmers, but do the exact opposite.
Moreover, any such talk of ‘doubling’ income refers to an average for all farmers. The actual incomes of different sections of farmers would differ. For example, in the period 2002-03 to 2012-13, for the farm households with land holdings of 0.01-0.4 hectares, the real increase in income[3] was only 21 per cent over the ten-year period (this despite the fact that the initial year was a drought year, and the terminal year was a normal year; thus much of the difference could be accounted for merely by better weather). Whereas for households with 4-10 hectares of land, the real increase was 47 per cent.
[To be continued]
[1] The reason we have not provided similar ratios of GDP for earlier years is that, in 2015-16, the Centre devolved a significantly larger share of tax revenues to the state governments, and at the same time slashed its own spending on those heads, such as agriculture, on which the states also spend. Hence the Centre’s spending in earlier years would not be comparable with that in 2015-16 and 2016-17.
[2] On April 9, 2016, the Minister for Rural Development announced that actual expenditure on MGNREGS had been Rs 41,371 crore. The budgeted figure for 2016-17 is Rs 38,500 crore. However, there are also large arrears of payment to be made by the Centre for 2015-16. At the end of 2015-16 wage arrears were Rs 12,483 crore. It is therefore difficult to figure out the actual budget for 2016-17. See Nitin Sethi, “MNREGA labour budget cut by 220 million person-days”, Business Standard, 10/4/16.
[3] That is, the nominal increase deflated by the Consumer Price Index for Agricultural Labour.
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