The promised reform of the farm produce market is long overdue. States have been loath to reform their legislative framework
By Saumitra Chaudhuri, Former Member, Planning Commission
Finance Minister Jaitley and his boss decided to go for “do-not-make-waves” Budget. In these tumultuous times it was a good decision. Fundamental arguments on taxes or subsidies do not matter much – it is the implication of changes from the status quo that counts. Company sales in the first three quarters of 2015-16 excluding commodities, grew by less than 2% from the same period of last year, although gross margins improved slightly. Including commodities, sales growth is negative. Certainly company results do not look like they belong to an economy with 7% plus real growth.
In the past two years with poor monsoons, there was avoidable inattention to rural India – on rural roads and micro-irrigation. The Budget has provided additional funding for PMGSY (Pradhan Mantri Grameen Sadak Yojana) which has a good track record of building quality roads on time and where the blue print for incremental funding is available.
The additional funding under AIBP and MNREGA for irrigation and farm ponds is also a good choice. Generally micro-irrigation has worked well in bringing water-economising sprinkler and drip irrigation within the affordability threshold of farmers. The double bonus is saving on water and higher yields. Digging ponds on farmer’s holdings gives him/her water security and provides a solution for water with relatively low capital investment. This idea – along with natural pesticide (a range of biological control) – was detailed as part of Twelfth Plan initiatives; so it is good to see it likely to take off, even if the Planning Commission has been interred.
The promised reform of the farm produce market is long overdue. States have been loath to reform their legislative framework that works to shield incumbents from competition and harms both farmers and consumers. When Finance Minister Jaitley says that twelve States have already signed up, one hopes that it is for a genuine improvement and not the faux “model” APMC act, that was dressed up (and a worse) version of the pre-existing legislation. Greater modern private investment in the supply chain aided by being opened up to FDI, will help reduce wastage and curtail monopolistic tendencies. The reason why farm prices are so stubbornly inclined to soar in India is not because the Indian farmer is lacking in productivity, which he/she is in tractor-loads full, but because of the outmoded and inefficient supply chain. So reform and capacity improvement here can do wonders to ensure that the grower gets a fair and remunerative price and the consumer also faces a reasonable price.
Highways were stuck with the PPP traffic jam, now thankfully cleared. There always was scope for stepping up of investment here and one was expecting it since last year. But good that it is being done. In the run-up to this Budget, there was a debate about the FRBM: whether or not to seek another year’s grace. The argument that when investment sentiment is weak, public investment is desirable is correct. But it is limited by how much actual investment can be done on the ground, in a time period of one or two years. The only candidates available are those that have picked by the Union Budget – rural roads, highways and micro-irrigation. Even then it will be a challenge to ensure that the moneys are spent quickly and not in the last quarter of the year.
As for the deficit targets, the choice was never as clear-cut as was sometimes made out. Higher allocations do not necessarily lead to actual expenditures on the capital side, leave alone questions of productivity. So there was an upper bound to increasing capital expenditures (other than bank recapitalization). On the tax side tinkering at large with existing arrangements had the capacity for very negative fall-out. Finally, Pay Commission awards could be squeezed in while staying within the FRBM target provided subsidies were frozen at this year’s level – which they have been. It suggests some changes in arrangements that may unfold during the year.