The Hindu Business Line : Missed, a golden opportunity

The Finance Minister, Mr Pranab Mukherjee, had everything going for him. When he got up to make the Budget speech in the Lok Sabha on July 6 , he stood on the threshold of making history. Unfortunately, he frittered away a golden opportunity.

The UPA won by a comfortable majority in the 2009 Lok Sabha elections. Unlike the previous UPA government in 2004-2009, this one will not have to work under the pressure of the Left allies. All Indians — young and old, rich and poor, men and women — were looking up to the Finance Minister to provide a dream budget that would have, at the same time, offered to continue with the “non-Hindu rate of growth”, dispel unemployment and deal with the concerns of farmers about the future of agriculture in a situation where both the vicissitudes of nature and the tyranny of the government appeared to be militating against his welfare.

Flagship programmes

Unfortunately, the UPA is now stuck in its own mirage of aam aadmi and “inclusive” economics. The two brand names gave such munificent results in the general elections that even the Congress dare not make even a brief deviation therefrom.

The Finance Minister obviously fell for the trap and announced a series of bonanzas by reinforcing the flagship programmes of the old UPA. This, in one way, can be an anti-recession programme if it could actually help push money into the market.

Unfortunately, as a recent study of the Planning Commission has shown, only 1.5 paise in a rupee released from Delhi reaches the common man. The rest is eaten up by the pipeline. Under these circumstances, welfare measures can only help the bureaucratic pipeline and not the market or the industry.

Threat of drought

Just before Budget presentation, the whole nation, particularly the farmers, were terrified about the prospect of a scorching summer and a prolonged drought. The rains-rivers-sea-clouds-rains cycle contains only so much water. That stock can only be marginally increased by devising ways of using sea water for drinking or irrigation. The more promising method is to eliminate losses by evaporation by taking recourse to covered rather than “under the sky” agriculture and to drip, sprinkler and mist irrigation methods. But, this requires massive investments in infrastructure and technology.

Loans and subsidy

The Finance Minister has announced a few steps that might eventually go to help the farmer. He has reduced the rate of interest on crop loans from 7 per cent to 6 per cent without implying any conditions about the amount of the loan or the purpose for which it was taken. This was perhaps deliberate.

The fact remains that agriculture just does not allow a 4 per cent margin that can be used for payment of interest. As long as the Commission for Agricultural Costs and Prices (CACP) does not compute the risk factor and the profit margin element into its calculation, a farmer would not be able to pay even the sensational 6 per cent rate of interest on crop loans.

The Finance Minister should be congratulated for having decided finally to brush aside the resistance from the Fertiliser Ministry and go for a new method of subsidy that would go directly to the farmer rather than to the industry. He has, fortunately, recognised the disastrous consequences of the imbalance in the nutrients used in farming.

Yet another good thing the Finance Minister did was to bury, once for all, the entire bogey about the Commodity Transaction Tax (CTT) and the need to suppress/depress the commodity futures markets. One can only hope that this is followed by calculated abstinence from temptation to interfere with the operations of the futures market and recourse to “now off, now on” policies. If the farmer feels assured about the dependability of futures markets, he is certain to develop his own mechanisms for mass scale participation of the farmers in that market.

The Finance Minister overlooked not only the drought that threatened the country only 48 hours earlier; he turned a Nelson’s eye to the fact that the government had increased the petroleum and diesel prices only a week earlier. If crude oil prices rise and there is no chance of fossil fuel resources augmenting, there is a crying need to develop indigenous resources of oil substitutes. The Finance Minister did announce the appointment of a committee to be formed by the Petroleum Minister on the subject. But, he did not give any indication about the possible terms of reference of the committee.

Sound economic policy

A large number of countries have found that development of ethanol and bio diesel as substitutes for fossil oils is a sound economic and environmental policy. This can be based on: One, there should be no restrictions on who can produce ethanol or bio-diesel. Two, the blending percentages should entirely be the concern of the vehicle users and not of the government. The government should only ensure that vehicle owners use the bio-fuels in any proportion they prefer.

Third, it is improper to leave the matter of price-fixing of bio-fuel to the petroleum companies that have a vested interest in importing crude oil from abroad. It would have been well within the scope of the Finance Minister to make more bold statements that would give a new direction to economic development.

Mr Pranab Mukherjee missed two big opportunities of going into history books. He must, at least, be given the credit for putting on anvil an issue that remains debated in economic science.

What is an effective antidote for the economic recession? Is it encouraging the “dig and fill” and “free lunches” programmes or the entrepreneur and the employer? India’s experience in the next couple of years will give a concrete answer to this question that has been plaguing economics for long.

(The author is MP — Rajya Sabha, and National President, Swatantra Bharat Paksha. )

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