Budget 2015: There is nothing for farmers to cheer about

 

When Finance Minister Arun Jaitley mentioned raising agriculture income as the first among the four challenging tasks before the government, I expected him to spell out some mechanism to pull out farmers from the terrible economic distress that continues to prevail in the farming sector. I am sure, like me, farmers too would be disappointed at being left high and dry.

At a time when agricultural production has dropped because of a shortfall in monsoon and the National Sample Survey Organisation (NSSO)  2014 has estimated the average monthly farm family income that a household drives from farming alone at a paltry Rs 3,078, the need for a bailout package for farmers was absolutely essential. But once again, the Finance Minister failed to see the crying need of the farm sector

Except for raising the farm loan limit from Rs 8 lakh crore (announced in 2014 budget) to Rs 8.5 lakh crore this year, and promising to create a national agriculture market, there is nothing to bring cheer for the beleaguered farming community. As I have said earlier, and also having told the Finance Minister, the Rs 8.5 lakh crore farm credit actually does not benefit farmers as much as it does to the agribusiness industry. 

Almost 94 per cent of the farm credit, available at a subvention interest rate of 4 per cent, goes to the agribusiness industry like seed, pesticides, and farm machinery manufacturers. It should therefore be called as agribusiness credit and not farm credit. 

The national agricultural market, which was detailed in last year’s Economic Survey, is aimed at taking farmers out of the preview of the APMC Act. In other words, it is simply an effort to render the APMC mandis redundant thereby leaving farmers at the mercy of the private traders. Considering that only 8 per cent farmers get the benefit of procurement prices, 92 per cent farmers are in any case dependent on the markets. If the markets were so helpful in providing a higher price for farmers produce I am sure the farm economy would have on its own been looking up. But the fact that markets have failed the farmer is written all over, and any move to strength a national agriculture market network therefore is not in the interest of the farming community.

I had expected the Finance Minister to announce a nationwide programme to create a network of mandisthrough the country, and extend the provision of procurement prices to all the States. However, providing some outlays for micro-irrigation and organic farming in northeastern States, and also the Pradhan mantra krish sinchai yojna is welcome. Food processing also gets push.  

It is not the lack of improved technology or an access to markets that is behind the prevailing crisis. It is the declining farm incomes over the years that pushed agriculture into a deep pit. But unfortunately, the economic debate has never gone beyond the growth rate in agriculture. The focus has remained on growth, and not on agrarian distress. #   

Why Jaitley's budget has failed to bring our farmers cheer. IndiaTogether. Feb 28, 2015 

http://indiatogether.org/union-budget-2015-arun-jaitley-provisions-for-agriculture-and-farmers-economy

Land Acquisition: Will farmer get a compensation of 4 times the market value?

For the past few days the government has been at pains to explain that farmers will get a compensation of four times the market value of the land that is acquired under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013, popularly referred to as Land Acquisition Act.

Amid protests by farmers and civil society groups, the controversial Land Acquisition Amendment Bill 2015 to replace the contentious ordinance was introduced in Lok Sabha on Feb 24. It does not make any changes in the compensation clause in the 2013 Act that promises four times the market value of the land in rural and two times in the urban area for farmers whose land is acquired for industrial purposes.

Although the 2013 Act has still not been implemented, and an amendment is being sought on hypothetical fears expressed by the industry, I decided to find out whether the 2013 Act that the previous UPA government had passed would really provide four times the compensation to farmers whose lands would be acquired. Considering the widely prevailing impression in the social media that farmers were being adequately and fairly compensated for their land and so those who opposed the new law were ‘anti-farmer’ it became even more important to look at how the law would translate in reality whenever it is put in practice.

To understand this, I take you back to Section 26 of 2013 Act. It provides for determination of market value of land by Collector, stating: The Collector shall adopt the following criteria in assessing and determining the market value of the land, namely:-

(a) The market value, if any, specified in the Indian Stamp Act,1899 (2 of 1899) for the registration of sale deeds or agreements to sell, as the case may be, in the area, where the land is situated; or

(b) The average sale price for similar type of land situated in the nearest village or nearest vicinity area; or

                  (c)  Consented amount of compensation in the case of acquisition of land for private        

                         companies or for PPP 

It also explains in sub-section (1) that the average sale price referred to in clause (b) shall be determined taking into account the sale deeds or the agreements to sell registered for similar type of area in the near village or near vicinity area during immediately preceding three years of the year in which such acquisition of land is proposed to be made.

(1) The market value calculated as per sub-section (1) shall be multiplied by a factor to be specified in the First Schedule.

The First Schedule

2	Factor by which the market value is to be multiplied in the case of rural areas	1.00 (One) to 2.00 (Two) based on the distance of project from urban area, as may be notified by the appropriate Government.
3.	In the case of urban areas	1 (One)

An informal group of eminent citizens in Chandigarh, comprising senior lawyers, senior journalists, retired bureaucrats and others have been examining various agricultural laws from time to time. As a member of this citizens group, I requested former Agriculture Secretary (Punjab), Capt S S Dhillon and senior advocate of the Punjab & Haryana High Court, Joginder Singh Toor, to help dissect the legal provisions of the 2013 Act.

As you know sale deeds are generally executed by the sub-registrar or Tehsildar under the Indian Stamp Act 1899.  Generally the collector rate is ½ or 1/3^rdof the prevailing market price.  If the market price is Rs 25 to Rs 30 lakh per acre, the collector rate is Rs 8/10/12 lakh. Taking the average of 3 years and multiplying it by a factor of 1 or 2 in rural areas. This discretion is left to the land acquisition officer. Even if he takes the maximum factor of 2, the value of land will be twice the collector rate.

In addition, the final award will include a ‘solatium’ (as specified in Section 30) equivalent to 100 per cent of the compensation amount.

The farmer therefore will either get a compensation equivalent to the prevailing market price or a maximum of twice the prevailing market price (if a factor of two is applied).  #

  

Freebies to poor is a populist measure; freebies to industries and business is economic reforms !

Freebies to poor have been under constant attack. But I haven't seen any economist pointing a finger to freebies doled out to the rich (This chart is for Gujarat land deals). Courtesy: Business Standard

 
Every time the Finance Minister starts to prepare for the annual budget, a crescendo builds up on whether he is going to present a populist budget or a big bang budget. This year, with the newly-elected AAP government in Delhi promising to provide subsidized electricity and free water, there is hardly a day when the media does not drum up this issue. Switch any TV channel and the chances are that the same set of economists and politicians will be telling you about how disastrous the subsidies are for the economy. 

Still worse, if you support the subsidy the poor get you are called a ‘leftist’ and if you question the massive freebies and subsidies that the corporate walk away with every year, you are labeled ‘anti-development’.

At the heart of this contentious issue lies the clever craft with which subsidies have been demonized over the years. What the poor get as financial support (or by way of cheap food, housing and energy) is called a ‘subsidy’, but what the rich and affluent get, and that is several times more, is termed as ‘incentive’.  In reality, the ‘incentive’ that the industries and business get is also a subsidy, but then it is the vocabulary that makes all the difference.

The total subsidy that the poor get in India – and that includes the subsidies for food, fertilizer and MNREGA – stands at Rs 2.52 lakh crores. This is a huge amount, and mainline economists are telling us that fiscal prudence requires cutting these subsidies so as to reduce the fiscal deficit. There can be no denying that efficient use of subsidies is crucial, and that requires improving governance to reduce corruption and leakage I don’t find any mainline economist pointing to the massive waste of country’s economic resources in the name of tax concessions (clubbed under Revenue Foregone in the budget documents) that are doled out to India Inc every year.

It is being said that the subsidy on LPG cylinders totals Rs 48,000-crores, good enough to wipe out poverty from India for one year. It sounds really a criminal waste of resources. Using the same yardstick, Rs 36-lakh-crore tax concession (in reality a subsidy) given to India Inc since 2004-05, if recovered, can wipe out poverty from India for 72 years !

The argument is that Rs 36-lakh crore tax concessions is an incentive to the industry. But what is not being told is that the massive incentive had failed to generate additional employment, and neither did it facilitate increased industrial and manufacturing sector growth. So where has Rs 36-lakh crore gone? On top of it, many of those who got the tax concessions also default on bank loans. The non-performing assets (NPAs) of public sector banks, including restructuring of loans, stands at a whopping Rs 10-lakh crores.

Anyway, what the mainline economists are worried about is Rs 2.52 lakh crores subsidy that spoils the growth story. But let’s look at the loss in just one infrastructure project – the New Delhi airport – built on 4,799.09 acres of prime land given on a highly subsidized price to the private partner, Delhi International Airport Ltd (DIAL). According to the CAG, a loss of Rs 1.63 lakh crore has been incurred. In other words, just one airport got a subsidy that equals to more than 50 per cent of what millions of poor receive as a life-saving support.

Coming to freebies, I have never understood the economic rationale behind giving land almost free of cost to the industries/corporates. For instance, Apollo Hospital in New Delhi was given 15 acres of prime land in the heart of Delhi for Rs 1 per acre. Not the only hospital to get a freebie that it doesn’t deserve, a large number of private hospitals, schools and colleges have been allotted land at throwaway prices. Even a Supreme Court directive to hospitals, most of them now cater to medical tourism, to treat at least 25 per cent OPD patients and 10 per cent IPD patients free of cost, is being openly flouted.

It will be interesting to find out how many industries/businesses, in addition to more than 45,000 hectares given to SEZs,  have been allotted land at Rs 1/acre or Rs 1 per sq metre in all the States.   

Whatever one might say the fact remains big business thrives on subsidies.   Whether it is in the form of natural resources like land, water, forests, minerals being made available to them at a throwaway price or tax concessions, including practically no annual interest rate on investments. Take Tata's. It got land at a price that only seeks 0.1 per cent interest (for its Nano factory). Steel tycoon Laxmi N Mittal was given Rs 1250-crore loan by Punjab Government to invest in Bathinda refinery and that too at an interest of 0.1 per cent. Under microfinance, the poorest of poor pays a minimum interest of 24 per cent, which comes to about 36 per cent on weekly recovery, is he/she has to buy a goat, but the rich industrialists get interest-free loans.

I can go on listing such cases of what is popularly called as crony capitalism. I am not against the industrial sector or the corporates. We need industries for economic growth but I am sure you will agree that if freebies and subsidies are bad for the poor, these are also bad for the rich. What needs to be understood and appreciated is that it is not the poor who are a drain on the nation’s economic resources. They are being targeted simply to divert public attention from the more heinous crony capitalism that continues to bleed the nation’s economy.#

A shorter version of this article appeared on ABPLive.in
Freebies to poor is a populist measure; Freebies to industries and business is economic reforms !
http://bit.ly/1vjqZJw Feb 19, 2015

The fetish for a higher GDP.

It’s a mad race. In a long drawn chase with China, India has been trying desperately to showcase a higher economic growth rate. But while China has promised to slow down to a relatively more sustainable levels of growth, India appears determined to race ahead.

By readjusting the base year, India has successfully managed to raise its GDP growth rate by about 50 per cent, from the existing 4.7 per cent to an impressive 6.9 per cent in 2013-14. By doing so, India now joins the ranks of Nigeria and Ghana, which have revised GDP estimates by 90 per cent and 60 per cent, respectively. With the overall size of the $1.8 trillion Indian economy remaining unchanged, it doesn’t however mean more money in your pocket. But surely a higher GDP provides a feel good factor to the investors and policy planners.

The significant jump has been arrived at by simple arithmetic – shifting the base year from 2004-05 to 2011-12. Measuring the market prices in addition, the GDP for the current fiscal is projected at 7.4 per cent.

In a country where a high growth rate is mistakenly considered to be a touchstone for development, including job creation and poverty alleviation the fetish for a higher growth rate is simply astounding. With media screaming at the GDP figures every now and then, and with not many analysts even understanding that a high growth rate does not automatically translate into more jobs, the Finance Minister is continuously under pressure to show a higher growth rate. Whether we like it or not, such is the economic sanctity attached that GDP is being treated for all practical purposes as a report card of the government’s performance.

Adding smart phones and LED television into the GDP calculations is therefore one way to raise the growth rate. But there are some more innovative ways to measure the contribution to the domestic economy. In the “miscellaneous goods and services” category, Britain has decided to add the contribution of prostitution and illegal drug sales to the national accounts. Illegal drug sales and prostitution brings in 9.7 billion pound Sterling’s to the British economy – raising the GDP by 0.7 per cent, almost equivalent to the contribution of agriculture in British economy. Italy is another country which adds prostitution and drug peddling in its economic calculations.

That such calculations will become a global norm is evident from what Joe Grice, the chief economic adviser at the British Office for National Statistics was quoted as saying: "As economies develop and evolve, so do the statistics we use to measure them. These improvements are going on across the world and we are working with our partners in Europe and the wider world on the same agenda.” If this becomes the global norm, I am not sure whether a country’s economic growth can be seen through more jobs created in prostitution and among drug peddlers.

Sometimes back, senior journalist M J Akbar had in one of his columns given us an excellent peep into the way economic growth is being perceived. He quoted the then Russian Finance Minister, who in the wake of declining GDP in Russia, asked fellow Russians to at least start drinking more of Vodka, which in turn will increase the country's GDP. Similarly, if you cut down more trees, the GDP goes up. Now you have to decide whether you need trees or you need to raise GDP by axing them.

It may startle you. But the fact is that the more you destroy the environment (and the planet) the higher is the economic growth. You can bomb a city, and then rebuild it. The GDP soars. Similarly, if you allow the biotechnology companies to contaminate your food and environment, the health costs go up and so does the GDP. The more the application of all kinds of deadly pesticides and chemical fertilizers the higher is GDP growth.

Now tell me, if there is an oil spill along the sea coast where you live, would you take it as an opportunity for economic growth? Or would you it is an environmental disaster that could have been avoided? Well, a Houston-based oil pipeline company has in a written submission before Canada’s National Energy Board claimed that oil spills are actually good for the economy. Oil Pipeline company Kinder Morgan says “Spill response and clean-up creates business and employment opportunities for affected communities, regions, and clean-up service providers,” It provides business opportunities and creates jobs.

It is primarily for such blunders in national accounting that at least 70 cities and smaller countries have abandoned the GDP pathway last year, reports CNBC. Accordingly, Shanghai has become the first major city in China to drop the GDP metrics as “government policy shifts towards a focus on growth quality over quantity”. The report also quotes the Chinese President Xi Jinping as saying “we can no longer simply use GDP growth rates to decide who are the (party) heroes here.” Interestingly, 26 out of 31 mainland provincial governments in China have lowered GDP targets to more sustainable levels.

That the GDP is a flawed estimate of a country’s progress is now being increasingly realized. Nor does a high GDP mean more job creation. If that were so, there is no reason why India should have witnessed a jobless growth in the past 10 years, between 2004-05 and 2013-14, when its average annual growth had remained over 7 per cent. In the past 10 years when GDP on an average remained higher than 7 per cent only 15 million jobs were created. Every year, some 12 million people enter the job market.

Even during the period when India was on a high growth trajectory exceeding 8.5 per cent annual growth, between 2004-05 and 2009-10, a Planning Commission report states that 140 million jobs were lost in agriculture. Those moving out of agriculture are generally perceived to be joining the manufacturing sector. But another 53 million jobs were lost in the manufacturing sector. The illusion that more the GDP more will be the job creation has been clearly belied. #