“AGRICULTURE COMPLTELY LEFT OUT” FROM BOTH STIMULUS PACKAGES-INDIA’S GROWTH SKEWED TOWARDS INDUSTRY AND SERVICES
PART-1*The RBI package of monetary measures to provide stimulus to growth of the economy does not contain any measures to address the credit needs of the agri sector and there is not even a single rupee allotted for agricultural sector in the fiscal stimulus package of Rs37,500 crore announced by the government. The entire focus by both the RBI and the government is on industrial sector, completely ignoring the needs of the agri sector. Credit to industry grew by Rs 60,400 crore during April-Aug 2008, where as credit to agriculture actually decreased by Rs 11,000 crore. On Y-o-Y basis, credit to industry (which provides employment for less than 20% of work force and contributing just about 25% to the GDP)grew by 48% (Rs 2,18,200 crore) compared to industrial credit growth of 40% (Rs.1,43,600 crore ) during the previous year. Growth in industry GDP, however, plummeted to 5% from 10%. Agriculture, providing employment to 60% of the work force and a GDP share of 20%, witnessed declining share in incremental credit to 9% from 13% during the same period last year. As on March, outstanding loans to agriculture were Rs 2,73,658 crore and the same declined to Rs 2,62,481 crore by Aug 2008. The mandated credit to agriculture is 18%. By March 2009, agri loan outstandings should reach the level of Rs Rs 3,90,000 Crore. There is a huge credit gap of over Rs 1,20,000 crore to be achieved by March 2009, and the RBI did not say a word about measures proposed to achieve the mandated target of agricultural loans. Government also did not announce any fiscal stimulus measures for agriculture by way of enhanced investment for irrigation, rural power, godwns&cold storage facilities, enhanced MSPs for rabi crops as per the formula given by Prof.M.S.Swaminathan Commission. Restriction and duties on export of rice are not removed while restrictions and duties on export of iron ore are lifted. CCI is not buying cotton from farmers at the MSP stipulated. Thus agri sector is completely ignored in a slew of first tranch of monetary and fiscal stimulus measures announced by the RBI and the government.
PART -2: No stimulus measures for Agricultural sector in the Second Stimulus Package too
i* In the second stimulus package for 2008-09, the Government and the RBI took wide ranging measures to address the problems in the monetary, infrastructure and export sectors. The two stimulus packages so far announced release funds over Rs three lakh crore and also provided several incentives and concessions to boost growth. The RBI has since October released Rs 3,20,000 crore into the system. The PSU banks are directed to lend in the next three months Rs 56,000 crore, over and above their existing disbursement target. Banks have disbursed about Rs 2,75,000 crore to non-food sector up to 19 Dec 08. The government had raised the public expenditure during 2008-09 by Rs 1.47 lakh crore, over and above the allocations made in the budget for the fiscal. Revenue foregone by Government itself works out to Rs 40,000 crore. All these benefits accrue only to Industry and Services sectors as highlighted below but none to the Farm Sector.
Stimulus Package 2 – Highlights
i) Additional plan expenditure upto Rs. 20,000 cr.
ii) (ii) An across-the-board cut of 4% in ad-valorem Cenvat rate except for petroleum products.
iii) (iii) Several other measures to support exports, housing, Micro, Small & Medium Enterprises (MSME) and textile sectors.
iv) (iv) Authorising India Infrastructure Finance Company Limited (IIFCL) to raise Rs. 10,000 cr. to refinance bank lending for infrastructure projects.
v) (v)Removal of ban on export of cement.
vi) (vi) An SPV will be designated shortly to provide liquidity support against investment grade paper to Non Banking Finance Companies (NBFCs) fulfilling certain conditions. Details will be announced separately. The scale of liquidity potentially available through this window is Rs.25,000 crores.
vii) (vii) An arrangement will be worked out with leading Public Sector Banks to provide a line of credit to NBFCs specifically for purchase of commercial vehicles.
viii) (viii) India Infrastructure Finance Company (IIFCL), which has already been authorized to raise Rs.10,000 cr. is now being enabled to access in tranches an additional Rs.30,000 crores.
There are many more incentives and concessions to boost production and exports
Not even a single incentive or concession is given to farm sector nor even a single rupee allotted directly to stimulate agricultural growth. Economic think-tank ICRIER's Director Rajiv Kumar told PTI that "There is no talk about agriculture. It has been completely left out". There is a major need to address the financial problems of cultivators, who produce food and other essential agricultural items. Yet, there is no mention of any such attempts in the two economic stimulus packages.
ii* Agrarian crisis continues-Agriculture is lagging, logging a paltry 2.3% annual average growth.
At just about 2.3% annual average growth rate of farm output over the past five years has been modest. Migration of people from rural to urban areas in search of employment is unabated. The period has also seen a large number of farmers ending their lives because of penury and distress. A whopping 16,632 cases of suicides by farmers, including 2,369 women were reported across the country in 2007 itself. The farm loan waiver scheme has not had the desired impact as fresh loans are not given. Very simply, the benefits of the country’s economic growth of the last four-five years have failed to flow to large sections of the people especially in rural areas. The trend of falling public investment in agriculture needs to be reversed. Strengthening input delivery system, expanding irrigation facilities, building rural infrastructure as also delivering price and market information to growers deserve priority. Instead, the Government has been tinkering with trade and tariff-related issues on an ad hoc basis. There has hardly been a worthwhile attempt at capacity-building among farmers; for instance, capacity to be able to face the pressures of marketisation or unfair competition from low-priced imports. Also, needed are large doses of investment in farm research and development with built-in accountability of performance on part of research institutions.
Plateauing of yields in major field crops is a matter of serious concern which, if not addressed with urgency, can slowly compromise the country’s food security. We need serious policy interventions in the form of new initiatives designed to meet not only the ongoing challenges of demand-supply mismatch, but also the newer threats of climate change, land constraints and water shortage. India’s growth over the last five years has skewed towards industry and services, while agriculture has remained a laggard, logging a paltry 2.3 % annual average growth. Public investment in agriculture has been on a declining trend. Lower growth rate, reduced investment and poorer yields can combine to threaten farm output growth, with consequent effect on availability and prices in the coming years. On the other hand, despite economic slowdown, if agricultural investments are stepped up — or in the least, not reduced — and yields are maintained, food will become more affordable. IFPRI’s three-point formula, namely promotion of pro-poor agricultural growth, reduction of market volatility and expansion of social safety nets, deserves to be high on the policymakers’ priority list.
iii* Farm credit growth merely 9%, Industrial credit growth a whopping 48%
Banks lent about Rs 2,75,000 crore during the period Apr –Dec 08
Industry’s share in total non-food credit was 48%, while that of agriculture was a megre 9%. Personal loans accounted for 14% of all non-food credit for the period.
Credit to the extent of Rs 95,000 crore was provided to the agriculture sector in the first half of this fiscal, which is only 32 per cent of the target .The banks are targeted to provide loans worth Rs 2,80,000 crore to farmers by March 09 and the gap is a whopping Rs1,85,000 crore.
iv* Key support from the farm sector helped in containing inflation
Record foodgrains production helped the Government in containing inflation. The farm sector, which grew at 2.5 per cent during the 10th Five Year Plan, bounced back to achieve a growth rate of 4.5 per cent during 2007-08. The government, which was grappling with rising prices for most part of the year, got key support from the farm sector as India achieved record output of foodgrains, coarse cereals, oilseed and cotton. The achievement was remarkable indeed, as several nations were battling food crisis in 2008.
v* Food prices started to raise again- Rural folks feel pinch of inflation harder- Gulf between inflation for urban and rural India will widen further
Annual rate of inflation for ‘food articles’ increased to 10.46 per cent for the week ended December 13. It was 2.33 per cent in the corresponding week a year ago. While the well-off urbanites are beginning to feel the effects of easing inflation, those in rural India are still grappling with high rate of increase in cost of living. The annual increase in cost of living for a well-off urbanite in December is almost 40% below that of the rural population.
According to the 63rd round of National Sample Survey (NSS), spending on food items among the high-income group in urban areas accounts for 26% of their total spending while it accounts for 52% of expenditure in rural India. The survey, conducted between July 2006 and June 2007, classifies well-off urbanites as those having monthly per capita consumption expenditure (MPCE) of Rs 2,540 and more. Headline inflation has fallen from a peak of 12.9% in August to 6.6% this month. But with inflation for food articles hovering close to an 18-month high at 10.48%, a convincing trend in easing of rural inflation is yet to emerge.
Consumer price index for urban non-manual employees, for which data is available till September, gives 45.7% weight to food articles, while CPI for agricultural labourers gives 69.2% weight to food articles. In September, inflation in rural India was 15% above urban India. With the rate of increase in prices of fuel and manufactured items falling further and with the prices of food articles showing no signs of easing, the gulf between inflation for urban and rural India will widen further.
vi* Measures needed to sustain Agriculture
Agricultural needs stimulus to sustain growth to feed us and export &earn foreign exchange.The following measures should be taken to sustain agri growth to feed our teeming millions and also export agri commodities to earn the much needed foreign exchange. Full disbursal of agri credit up to mandated limit of net bank credit 18% by March 2009. There is a wide gap of over Rs one lakh crore in disbursals and in fact outstanding Agri credit declined by Rs11,000 crore by Aug as against huge increase in industrial credit by Rs60,400 Crore during the same period. A sub-limit of 10% should be earmarked to small and marginal farmers as recommended by Arjun Sengupta Commission.
In order to encourage banks to give loans to marginal, small and medium farmers (MSMF), guarantee cover for such loans to be provided on the lines of guarantee cover for MSME by SIDBI and collateral should be waived for loans up to Rs 5 lakh. NABARD to refinance loans given by banks to MSMF by opening a special window for this purpose.
Ban on export of rice to be lifted and export duty and price limit on export of basmati rice should be withdrawn. MSPs should be announced for rabi crops as per formula given by Prof M.S.Swminathan Commission. Additional funds to the tune of Rs 25,000 crore should be allotted for rapid rural infrastructure (irrigation, power, godowns & cold storages, rural roads etc) development
