A budget for the urban rich, not farmers

A budget for the urban rich, not farmers

Praful Bidwai

March 8 2008

CONTRARY to media hype, Indian Finance Minister P Chidambaram's latest budget does not set a new direction. Nor does it address the huge imbalances in India's recent growth pattern. The decision to write off farmers' loans worth Rs60,000 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 recent problem with the Indian economy hasn't 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 has failed to do so.

The much-touted Rs60,000-crore debt write-off has disarmed and confused the Bharatiya Janata Party. This is undoubtedly the largest such write-off. But it pales into insignificance beside the various exemptions, rebates, incentives and concessions provided to corporate taxpayers and rich individuals.

Last year, the government wrote off taxes and duties worth a colossal Rs2.79 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 Rs1.48 lakh crores in customs duty exemptions, Rs58,655 crores in corporate-tax concessions, and over Rs38,000 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 two hectares (five acres) or less.

But half such farmers borrow from local moneylenders. Seventy-seven per cent of marginal farmers owning less than 0.01 ha depend on moneylenders. So a majority of farmers are excluded from Chidambaram's waiver.

Second, only the loans of farmers owning two ha or less are writen off. There's 25 per cent debt relief to bigger landholders provided they repay the remaining 75 per cent. But it's unrealistic, if not mean, to expect highly indebted farmers to repay that 75 per cent. 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 unirrigated, low-quality land with small yields above the two ha ceiling. This is especially true, say, of the suicide belt of Vidarbha. A farmer owning five ha there is often distressed to the point of suicide. He/she stands to get virtually no relief.

A far better alternative would have been to write off loans in inverse proportion to holdings and yields — say, Rs30-50,000 for the poorest, Rs15-30,000 for the less poor, and a smaller sum for others.

This would also have taken some of the burden off the nationalised/cooperative banks, which are unlikely to be fully compensated for the write-off. It's in nobody's interest to weaken the public banks — unless the hidden agenda is to set them up for privatisation.

In contrast to his miserly approach to farmers stands Chidambaram's generosity to rich income tax-payers, only 25 to 30 million people. 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 Rs5 lakhs — thus belonging to the top two per cent — need pay no tax at all if s/he uses all available exemptions. And someone who earns Rs10 lakhs — and there are only three lakh such Indians, comprising one-hundredth of the population — will only pay a total tax of Rs 2.7 lakhs.

The tax regime has thus become even more regressive. To match this, 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.

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 per cent.

Forgotten is the goal of universalising it. The NREGA's district-wise coverage has been doubled, but its allocation raised by just 14 per cent.

The budget's health outlay is 17 per cent higher than last year.

But an annual increase of 35 per cent is needed over several years to raise public health-spending from the present miserable 0.9 per cent of GDP to the three per cent target.

As for social security, Chidambaram has ignored the thoughtful recommendations of the parliamentary standing committee on unorganised sector workers to give rights and entitlements, 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 subregional 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 per cent at a time when the defence ministry is returning about Rs4,000 crores unspent year after year. Including pensions, the defence allocation now stands at Rs121,160 crores — compared to a mere Rs34,300 crores for education.

Like the big tax breaks for the rich, this does not speak of balance or healthy public priorities.

(Praful Bidwai is a senior Indian journalist, political activist and widely published commentator)