Inflation will get more impetus to grow more in the future
Govt. has no clue about agriculture
By Manohar Manoj, Editor, Economy India
We all know this time Pranab Mukherjee’s Budget presentation for year 2012-13 did not get much applaud from any quarter. People were estimating that this budget would not be a populist one, because this is not an election year, they were expecting a bold and reformative budget. But on the contrast this budget was neither populist nor the bold one. Let us forget this kind of measuring rod for any budget, whether it is about general budget, Rail budget or any major policy announcement of government. Actually all those persons who belong to treasury bench, in all circumstances they go for all out praise for these events whereas in contradiction, the opposition bench, even budget is good; they go to criticize it. Thirdly, the media critiques, by quoting budget on the ground of common men! Common men! They keep common men deprived of all realities attached to the budget document.
So firstly we must try to pick that kind of yardstick which can test this budget document in the preview of country’s ensuing economic problems which is affecting all citizens of the country. This fundamental problem certainly is the problem of inflation, which the country is consistently facing for last 3 year. Year, 2009 onwards we are witnessing a very high rates of inflation which even touched the mark of 20 percent last year and talking about food inflation it went up to even 25 percent. So the present budget had to deal the resurging problem of inflation by affectively checking fiscal deficit and as well as revenue deficit which was consistently higher since 2008-9 and secondly this budget have had to deal the supply constraints which is persisting in eatable market, which is basically attributed to the absence of minimum and maximum price cap in the agro market of the country.
The problem is that despite having a very high food inflation rate in the economy, in every harvesting season, almost all crops are sold by farmer at much below cost of production rate and during the off season period ,it becomes so costlier. The irony is that we have price index for all agro commodities, but we do not have cost index for all agricultural commodities.
We first come on fiscal front, let remember the period of 1991, when under crisis situation of Indian economy, the rate of inflation was touching the mark of 17 percent and present prime minister, then finance minister started numbers of reform measure to bring back the economy on right path, but he could not able to control problem of inflation in his tenure, later on inflation started to decline, when govt. of India consistently followed tight fiscal regime and on that target basis the rate of fiscal deficit was continuously being lowered down to below 9 percent mark. And this process was very much continued during NDA and UPA-1 regime and till the period of 2008-09 the fiscal deficit of the country was brought down to just 2.5 percent of GDP and revenue deficit was 1.1 percent. This was the period when inflation and price rise were stabled and rate of growth was touching the mark of 8-9 percent mark. But in the year 2008-9 this UPA govt. collectively brought three so called populist and anti economic measures that was waiver of around 70,000 crore worth of farmers’ loan, implementation of sixth pay commission by spending 1 lakh crore and 40000 crore costing NREGA Schems, these all were brought collectively to win 2009 Loksabha elections by UPA Govt. It resulted in almost doubling of fiscal deficit and revenue deficit of Govt. of India during the upcoming years. Subsequently we have had a high inflation, high interest rate and lower growth rate economy and its results have already come before us.
Higher inflationary trend is affecting the country’s economy in many ways, it is affecting industrial and manufacturing production. For last 3-4 year RBI has consistently advocated the policy of tight money which has resulted in high interest rate regime, consequently high cost of fund has affected the investment climate of the country, as a consequence we have very low industry growth rate for last 3 year.
Apart from this govt. could not able to curb the huge quantum of non planned and wasteful expenditure. Talking about sixth pay commission, views were raised it was compulsory for the govt., but govt. could have linked it to the employees’ productivities, at the same time government could not introduce the provision like lesser holidays and higher working hours, as recommended by sixth pay commission. Coming on the NREGA , now it MNREGA, it is not a productive or gainful employment schemes, it is just a non- asset creating and man days targeting schemes which does not provide adequate wages to the laborers.
Irony is that UPA-2 government has already planned another inflationary kind of measures for the next Loksabha election, in form of Food Security Act. This provision would consume around one lakh crore of funds out of government kitty. It will not only aggravate the present inflationary trend in the economy it will also open a new vista of corruption as well as it will create huge supply constraints in the food market. The dual system of food market will deter the farmers in order to grow more, because they will not get better price incentive and MSP system would be practically failed to deliver its objectives.
Various other measures which the finance minister has taken in this budget will make the prices more on higher note. The raising of service tax by 2 percent plus enhancing the ambit of service tax to many more areas, raising the excise tax by 2 percent and not raising the income tax limit in appropriate manner, finance minister has tried to make many thing more costly and thus he wants to raise the revenue of government in order to fill the fiscal gap. Through, these measures were brought by finance minister in order to bring the current year fiscal deficit from 5.9 percent of GDP to 5.1 percent of GDP. But on the whole these short cut and half politics and half economics measures will ultimately ruin the common men.
See, on one side in this very budget the FM has given proposal for lowering down the subsidy from 2.2 p.c. of GDP to 1.9 p.c. of GDP. And on the other side he has already planned for food security act.
There are two polarized view on the issue of common men. One view is focusing on subsidy oriented schemes, like food security act and money transferring mechanism from government kitty to common men’ pocket. The other view says, is let the market decide the distribution of production and income. But we have to opt that kind of view which can yield maximum result with lowest amount of risk and waste of money.
The best way to help the common men is to raise their purchasing power, which can be ensured by giving them appropriate and gainful employment or self employment and make them free for their choice of consumption and secondly invest heavily on capital and social infrastructure in rural areas along with its social and economic audit. In order to raise the purchasing power of common ruralite , government should appropriately raise their daily wage income and make effort to transfer resources to the area of social securities like education, health, insurance, child care and maternity health, widow, handicap pension and stipend for poor students and capital outlay over construction of roads, hospitals, schools etc. Apart from that we urgently need a policy like PURA(providing urban areas in rural areas) which can really turnaround the economic condition of rural India. But in lieu govt. is more dependent on schemes like cheaper food grains; free electricity and loan waive ring and NREGA kind of schemes which is not able to generate reproductive assets and infrastructure in the rural areas of the country. Therefore we have to inflationary pressure over our economy and deterrent environment for our agronomy. The best policy for the agriculture could be to ensure the cost plus prices for all agricultural product of the country and bring all agricultural inputs in open market and make farmers to pay for it.
This budget never looks a path breaking budget, albeit very astonishingly finance minister has taken the notice of issue of corruption in his budget speech. The consistent agitation over the issue of graft and black money, this government was compelled to initiate some measures to curb corruption in public life; the important among them is new legislation regarding government procurement to make it more transparent. FM has said that many double tax avoidance treaties have been made by govt. in order to bring back the unaccounted money from the foreign countries. The most notable among them is announcement regarding white paper on black money which would be likely to come in the present session of parliament.
Overall, the honesty and good intention and drafting a better result oriented policy measures to ameliorate the economic condition of common people, both are lacking on the part of government. We actually need a national policy for rural industrialization and in order to this national mission for food processing industry is welcome step in this budget.
. In order to this our budget should focus on strict fiscal regime, revenue maximization by widening the tax base, enhance productivity by abolishing wasteful expenditure and by employing planned expenditure, introduction of social and economic audit both for any public schemes and transferring of resources to the social securities area rather than subsidy oriented populism. For this we have many role models for ensuing socio economic reform in our country in forms of mobile revolution, polio eradication, application of IT in order to make the system more transparent
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