ALTERNATIVE BUDGET
The Do Dooni Chaar Budget
Prof. Arindam Chaudhuri New Delhi 4/1/2011 6:42:17 AM
Often, the most profound and transformational changes can be achieved by taking simple and easy decisions that are usually very hard to take. Those simple decisions become hard to take because we — particularly more so in India — have this inexplicable and inexcusable habit of trying our best to avoid reality; to blink and look the other way even when harsh realities stare at us unblinkingly. While brainstorming for the multiple award winning movie Do Dooni Chaar, we were very clear that the lead characters must be confronted with choices that are gut wrenching even though they appear simple. I personally think the movie touched a chord with people across India because it highlighted the power of simple truths and simple facts; and because it enabled ordinary Indians to transcend obstacles by sticking to simplicity, honesty and integrity; and most importantly because the characters had the guts to face facts and reality as they are and call a spade a spade. We could have loaded Do Dooni Chaar with liberal doses of jargon, semantics, polemics, clichés, grandstanding and dissembling. I am proud that our team didn’t succumb to such temptations.
I have spent days reliving the Do Dooni Chaar experience as I struggle to think of a theme that will become the highlight of my eleventh consecutive Alternative Budget. The three previous themes of my Alternative Budget proved to be a major hit with thousands of readers and opinion makers. All three had a touch of ‘naughty’ in them. In 2008, we had asked the Finance Minister to ‘Ban the Budget’. In 2009, we showcased India’s seeming helplessness in fighting corruption by requesting the Finance Minister to present a ‘Khao Aur Khilao Budget’. And in 2010, I do admit we decided to ride on the immense popularity of that blockbuster — and yet eye opening movie — by presenting ‘A Budget for Three Idiots’. This time around, some colleagues suggested that we ride the Cricket World Cup fever and call my 2011 Alternative Budget the ‘De Ghoomake Budget’. There is little doubt that the theme would have been catchy, and even rib tickling. Eventually, what persuaded me not to opt for the obviously popular and catchy theme is the kind of Indians this Alternative Budget is dedicated to. And the realization that those Indians deserve a less catchy and more simple, yet powerful theme. Hence the decision to call my 11th Alternative Budget the Do Dooni Chaar Budget. (Of course, some colleagues were insisting I call it the Do Dooni Paanch Budget as a tribute to Indian politicians!).
Revisiting lal bahadur shastri: Jai Jawaan Jai Kisaan
Before I go any further, let me add here that this Alternative Budget is dedicated to that most unsung and unheralded of Indian politicians who personified the power of simplicity — Lal Bahadur Shastri. Yes, it is dedicated to the man who coined the term ‘Jai Jawaan, Jai Kisaan’ and made it immortal. Sadly — like most things in India — even this immortal term has been systematically degraded down into a tired cliché that people spout more out of indifferent rote than any conviction...
The simple fact is that India has degraded the Indian farmer into a comic book cliché at best and a disgustingly treated step child at worst. The simpler, and more glaring fact is that unless the Indian farmer and Indian agriculture participate in economic well being and prosperity, India doesn’t have much of a future, either as an economy or as a nation. In fact, along with education and health, the most neglected area for every single Finance Minister since 1947 has been agriculture. The disgraceful neglect of the three is the most important reason why India ranks near the bottom in virtually all indicators of human development. My alternative budgets in the last few years have repeatedly pointed out and suggested innovative ways in which India can improve its dismal record on health and education. This year, the Alternative Budget will focus on the Indian farmer and Indian agriculture.
Of course, if you go by recent media reports, I might just have picked up the wrong topic to highlight this year. After all, statistics reveal that the agriculture sector will grow at about 5.5% in the current year; one of the best performances in recent years. In fact, it is the unusually high rate of growth of the agriculture sector that will ensure that the GDP of India grows at a healthy 8.6% in the current year. Then again, the media has been filled for months with screaming headlines about high and persistently rising prices of food and vegetables. Who can forget the shock — both to the psyche and family budgets — caused by onion prices shooting up to Rs.90 a kg in recent times? If you do go to the market to buy vegetables, you must have realized that prices of every item have virtually gone through the roof. Add to this the jingoistic claims made by our policy makers that India ranks in the top 5 globally when it comes to the production of food, vegetables, milk, poultry, cotton, tea and what not.
But as many of you know, the reality is starkly different, and shocking. Let me start with data compiled by the National Crime Records Bureau (NCRB). The latest year for which data is available is 2009. In that one year, 17,638 farmers committed suicide — one almost every half hour. The state that took the lead — as always — in the numbers of farmer suicides was Maharashtra, the state to which our Union Agriculture Minister and current cricket Czar proudly belongs (See Chart). The top three states in terms of farmer suicides are Maharashtra, Andhra Pradesh and Karnataka — one ruled by Congress in alliance with the Pawar led NCP, the second ruled by Congress and the third ruled by the BJP. In less than 15 years since official NCRB records were kept (state governments never bothered to keep proper records of farmer suicides till 1997), more than 2,50,000 farmers have committed suicide. You can be sure that the figure for 2010 will be higher, and that for 2011 even higher. Worse, everybody involved in this dirty and shocking numbers game knows that state governments routinely ignore or under report cases of farmer suicides. The actual figure is bound to be much higher. There can be no more damning indictment of our economic policy making and successive union budgets than this simple, stark and shocking fact about the extent of farmer suicides.
There would be little doubt that a large reason for this is the extent of indebtedness of farm households across India. ‘Reliable’ data for the same are available only from the National Sample Survey No. 59 of 2003. In that survey, Andhra topped the charts with more than 80% of farm households being indebted (Around that time, Andhra had also acquired the dubious reputation as the number one farmer suicide state of India). In the same period, 61% of farm households in Kerala, 65% in Karnataka, 51% in Madhya Pradesh, 74% in Tamil Nadu and 55% in Maharashtra were found to be indebted. Things and times have changed since then and independent research now suggests that Maharashtra, Andhra and Karnataka now lead the table in indebtedness of farmers. They also happen to be the top states when it comes to farmer suicides.
Beyond Farmer Suicides
There is a larger picture that is hidden behind these numbers; and that is the shameful neglect of the agriculture sector by the Government of India, and by successive finance ministers of the country, though they all regularly pay lip service to the cause of the farmer. The most telling indicator of this is shockingly declining levels of investment in this crucial sector. One particular set of data shows how pathetic the situation is. During 1980-81, the share of Gross Capital Formation (GCF) in agriculture out of total GCF was just about 18%. Now, 18% for a sector on which close to two thirds of the total population depend on livelihoods is bad enough. What happens subsequently is worse. The percentage keeps falling steadily since then and by the end of the 20th century, it is a pathetic 5.8% (See Chart). Even as the Indian farmer has suffered ignominy after ignominy, the government has kept on reducing investments in agriculture. By the time, the UPA came to power in 2004, there was a lot of talk of turning things around. And, during the Eleventh Five Year Plan (2007-12), there was talk of a substantial increase in investments in agriculture. The two finance ministers since 2004, P. Chidambaram and Pranab Mukherjee have used every Budget speech they have given to announce more and more fancy schemes for the farmer and the agriculture sector. In fact, it was proudly announced that the allocation for agriculture and allied sectors in the 11th Five Year Plan was raised to Rs.50,924 crores, up from Rs.21,068 crore during the 10th Five Year Plan. Yet, the mid term review of the 11th Five Year Plan officially admits that the share of agriculture and allied sectors in total plan allocation has not budged a millimeter from the 2.4% it was in earlier five year plans. So much for the government claims about really caring for the farmer and trying its best to bring about a transformation in Indian agriculture.
There are some more shocking facts that I would like to highlight about agriculture. The first is the abysmal performance of India as compared to other countries when it comes to productivity. Even the top states of the country in terms of productivity, Punjab and Haryana, perform very badly when compared to China and quite pathetically when it comes to countries like South Korea, Japan, Australia and the United States, to name just a few countries (See Chart). But let’s not confine ourselves to the usual comparisons and go on a spree of belittling India by merely comparing it with other countries that have delivered performances that should make our politicians and policy makers hang their heads in shame. Let us look only at statistics from within India to understand why agriculture is facing such an unprecedented crisis.
We all knew that the Green Revolution was a reality by the 1970s and India had finally broken out of the famine trap by then. We also know how politicians, policy makers and analysts keep reminding us of the wonders of Green Revolution and how it made India self sufficient when it comes to food. That much is true. But what is hardly ever talked about in policy circles and the media — barring some honorable exceptions — is how Green Revolution is history and how all the fruits of that endeavour have already been frittered away. Between 1980 and 1990, the average annual growth in the per hectare yield of wheat was a commendable — if not spectacular — 3.1%. During the period from 1990 to 1999, the growth rate in yield declined heavily to 1.83%. Worse, between 2000 and 2009, the average annual yield growth rate in wheat crashed to a meager 0.68%. Everybody knows that spectacular growth in wheat production and yield was one of the highlights of the Green Revolution. Even official data now clearly indicates that growth has almost completely tapered off. Rice has not performed much better. During the 1980 to 1990 decade, average annual growth rate in yield was 3.19%; it crashed to 1.34% during the next decade before recovering marginally to 1.61% during 2000-2009. This steady and consistent decline in the growth rate of yields is the principal reason why India lags so miserably behind other major nations when it comes to farm productivity. And it is also the major reason why farm incomes have not been going up in a manner they should.
Look at it another way. In the 60 years between 1950 and 2010, food grain production went up by a factor of 4.5. In the same period, production of steel went up by 65 times; the output of cement soared by about 60 times and the generation of electricity went up by more than 140 times (Just for your information, agriculture accounted for 31% of total electricity consumed in India in 1995. By 2008, the share had crashed to 24%). Interestingly, even the consumption of fertilizers — used only in agriculture — went up by more than 70 times in 50 years between 1960 and 2010 (See Chart).
The Irrigation Scam:
Will the CAG Please Take Note?
The obvious question we would ask is: Why are yields in agriculture stagnating even though there is such a massive increase in fertilizer consumption? The blame lies entirely with the government and successive finance ministers. And we can dig up numerous instances of how policy makers in India have neglected, ignored and degraded agriculture in India. But just one example will suffice. I will take the liberty of quoting former Finance Minister P. Chidambaram when he presented the first UPA budget back in 2004. He said, “The Accelerated Irrigation Benefit Programme (AIBP) was introduced in 1996-97 and was allotted large funds year after year. Yet, out of 178 large and medium irrigation projects that were identified, only 28 have been completed.”
Chidambaram went on to announce how irrigation and the completion of stalled irrigation projects would become the top priority for his government. The fact is, his government has done nothing to change this pathetic situation and was in fact not revealing even more embarrassing statistics about the state of irrigation in India. Recently disclosed official data reveal the following: the government spent more than Rs.1,30,000 crore between 1993 and 1998 on major and medium irrigation projects. In the same duration, the area irrigated by canals (supposed to be fed by major and medium projects) declined from 17.6 million hectares to 15.3 million hectares. Just look at the shocking numbers: successive governments have spent more than Rs.1,30,000 crore on irrigation projects and the actual area under irrigation has fallen (See Chart). We all know where the money must have gone! It’s another scam! More shocking, ‘official’ data indicates that farm area fed by tube wells has gone up by more than 70% in the same period. We all know where the money meant to dig tube wells goes to! Even more shocking, the actual use of groundwater — where farmers use natural ponds, lakes and techniques like water harvesting — has increased by less than 10% in the same period. The simple fact is: there is no money to be made from natural ground water sources!
By now, even these selected morsels of data related to the agriculture sector in India would have convinced even the most cynical that successive finance ministers have played a cruel joke on the Indian farmer. If you add to this tale of calumny the equally shocking neglect on the front of human development indicators like education, health, sanitation and basic infrastructure like roads and electricity, it is clear that Indian politicians, politicians — and even the media — don’t care a fig about the Indian farmer and Indian agriculture. I have given data on the pathetic access rural Indians have to education, health and infrastructure many number of times in the past to recount it again in detail. Suffice to say that 85% of Indians below the poverty line including about 45% below the destitution line (the government’s definition of the poverty line at 400 rupees per head per month) live in villages; that almost 60% of rural India is illiterate and more than 75% of rural households don’t have access to clean drinking water and basic sanitation.
This alleged concern for the poor and the aam aadmi would have been a joke were it not such a cruel travesty. And I think, it is now the historic duty of the Finance Minister to redress such wrongs as fast as possible. The honourable Finance Minister Pranab Mukherjee is well aware that the Marxists will be decisively thrown out of power from West Bengal in elections very soon after he presents his budget. He would also know that voters-mostly farmers and rural households-have got fed up of the lies and false promises of the Marxists who claimed to care for the poor and the downtrodden. So, I would think it makes even electoral sense for Pranabda to start doing simple Do Dooni Chaar kind of things in his budget, if the Congress is serious about its belief that Rahul Gandhi is destined to be the Prime Minister after Lok Sabha elections in 2014. Quite simply, his priorities should be simple and stark: lets rescue and revive the Indian farmer both from the trap of low productivity-low incomes and poor education & health and unemployability in the 21st century except as virtual bonded labour in NREGA programs.
Saving the Indian Farmer
In keeping with the Do Dooni Chaar theme, I would like to keep my suggestions simple, and short. My Alternative Budget would address two issues: raise productivity in agriculture so that incomes of farmers rise at least moderately, if not as fast as the denizens of Shining India; equally important, provide quality education and health care to children of farmers so that they can compete with other Indians for both jobs and entrepreneurship skills in the next decade. Both can be achieved with simple steps; all it needs is political vision, administrative integrity and that simple-but often tough-job of calling a spade a spade. And I can lay down those steps in just a few paragraphs that will follow.
Quite obviously, a lot of money is required for what I am proposing. The farmer and his world have been so badly neglected for so long that only a massive increase in resources can begin to make him catch up. And we don’t need or want the kind of false promises made earlier by previous governments and finance ministers — like the one about doubling Plan allocations for agriculture during the 11th Five Year Plan only to admit later that the sector still accounts for 2.4% of Plan allocations despite tall talk, grandstanding, polemics and clichés.
In the Union Budget presented for 2010-11, the Finance Minister Pranab Mukherjee had allocated a total of Rs.12,836 crore; up from Rs.10,527 crore in 2009-10 for agriculture, allied activities and irrigation. Add that fancy term ‘rural development’ and you get a total Budget allocation of about Rs.67,000 crore. That is less than 15% of the total funds allocated by the Finance Minister in 2010-11. And this is despite the stated concern of the UPA government about the distress being faced by rural India — which is the real India.
In my Alternative Budget, firstly I would therefore increase the allocation for the Rural Indian — mainly farmers — by a straightforward Rs.100,000 crore a year. The obvious question is why? Well, everything has to be in some context. And the context here is that rural India needs 150 million jobs to be created. As a committed government our aim should be to do this in a span of five years and not 65 years. Thus, we have to create 30 million jobs a year. In rural India still a job can be created by investing about Rs.33,750 per job. This would mean the necessity for an additional 1,00,000 crore per year. Half of the money would be invested every year towards improving physical infrastructure in rural India — including effective irrigation facilities, better and functional roads, a vast network of cold storages and regular supply of electricity. The other half would be every year towards improving social infrastructure in rural India — including much better access to education, health and sanitation. The first would lead to a dramatic improvement in productivity in rural India and result into vastly superior income levels for farmers. The second would lead to a dramatic improvement in human development indicators in rural India. And both will create jobs, removing the massive rural unemployment from India.
Do I care about the five percent top Indians and the corporate sector? Frankly speaking I don’t. With about 85% of Indians living in poverty its time we worked genuinely for them. So this alternate budget is for our farmers and poor. And poor live in cities too. So I would suggest another 1,20,000 crores to be allocated for 25 million jobs to be created for the urban unemployed. In urban India the cost of creating a job dramatically multiplies to about Rs.2,40,000 per head. Thus, to create five million jobs per year, we would require the amount I just mentioned.
The urban poor need another thing apart from employment. They need dignity of existence so that another Slumdog Millionaire is not made on India by western imperialists. For that we need to budget another additional Rs.24,000 crore per year for five years to create 15 million urban flats of minimum 250 sq. feet each.
Though I don’t want to care much about urban India in this budget, since Pranabda will in any case do enough; yet I want to focus on one burning issue of this year. Corruption. And the only and only solution for corruption is a functional judicial system. Corruption and greed are globally prevalent, yet it touches far less lives in the USA than in India simply because the American judicial system is functional and ours is dysfunctional. In America they have ten times more judges per million people than in India. If we are to try and achieve such standards we need to have about 1,00,000 more judges. It sounds huge but is surely achievable again in a span of five years. And to have 20,000 additional judges per year we have to budget for approx. Rs.6,000 crores per year additionally assuming that the expenses around a judge and his office assistants put together is definitely not more than Rs.30,00,000 per year.
Thus the total additional funds required is about Rs.2,50,000 crores. First and foremost, these funds should have been made available from our existing budget of more than 6,00,000 crores since it pertains to 85% Indians. Secondly, a huge amount of these funds will come from duplication of allocation in various schemes like NREGA etc. However, I will assume the government is not willing to do so and the entire fund has to be generated through new sources. So how do we do that?
How the Future Will Arrive
In keeping with the simple is best philosophy of Do Dooni Chaar, I will firstly suggest just one very simple and long overdue revenue raising proposal — just do away with the subsidies on LPG, Kerosene and Diesel. They have led to huge distortions in the economy and have absolutely not benefited the so called beneficiaries for whom the subsidies were allegedly meant. Rather, you have cases where honest officials being burnt alive when they have tried to stop the theft of subsidized kerosene. In 2010-11, the combined subsidy for all three would amount to a little less than Rs.100,000 crore. As simple as that. Just one decision from Pranabda after consultations with Sonia Gandhi and Manmohan Singh could make it happen.
The second source, I will suggest, is legalizing all the black money stashed abroad by giving a simple 10% tax payable in five equal installments of a mere two percent each! With two key riders. First, that government will take genuine steps to recover the money stashed abroad and all black money recovered after one year will be nationalized. And second, that there will be measures in place to ensure that future generation of black money becomes almost impossible. And of course, with a functional judiciary, no one will go unpunished. With something as high as an estimated Rs.75,00,000 crores stashed abroad, this will lead us to a huge new revenue stream of a minimum of Rs.7,50,000 crore in five years — or Rs.1,50,000 crore per year, making up for the balance required to my proposals into action.
Of course, in the longer run, we will have to devise simple and innovative ways to ensure that the funds allocated for the farm sector are used properly and effectively. And the only way to do that is by truly empowering the beneficiaries. In my 2006 and 2010 alternative budgets, I had argued that the government must spend huge amounts of money on popularizing the use of the Right to Information Act so that Indian citizens can monitor the performance of programs and schemes that are meant to benefit them. More specifically, in my ‘Budget for Three Idiots’ in 2010, I had actually suggested a novel and innovative carrot and stick approach to ensure better performance of social welfare schemes. My logic was simple — even corrupt Indian officials are human beings and will respond to the right incentives. For example, I had suggested a Rs.1 lakh incentive per year for teachers who delivered the best ‘pass’ and ‘retention’ rates in village schools. The total annual expenditure for such a scheme would amount to just Rs.5,000 crores across India. Of course, the rider I had added was this: the Rs.1 Lakh incentive would be disbursed only after five years when it has been proven that the teacher has been genuinely successful. The prospect of an additional income of Rs.1 lakh per year, along with appreciation and admiration of peers, would be a great incentive for teachers to compete amongst themselves to deliver the best results. I had also suggested in that Budget that NREGA funds be used to construct schools and health care centers with labourers whose children would actually use them working on them.
I would extend the same logic to all projects, programs and schemes operating in rural India. For instance, engineers working on rural road construction would earn huge cash incentives if ‘their’ roads are good and remain functional even after a few monsoons. Of course, I would use the stick too: assets of all those teachers, engineers, doctors and other government officials who demonstrably fail to deliver results would be frozen. This might sound Utopian right now. But believe me, it will not be very difficult to implement once the UIAD project is completed in the near future. In the long run, the UIAD project and the right education policy would ensure that children from villages would emerge as teachers, doctors, engineers, supervisors, overseers and technicians who would look after cold storages, electricity lines, irrigation projects, road maintenance and repairs and the delivery of health, education and sanitation. I am utterly confident that this can all happen in just 10 years. Of course, it would take enormous political will to take these simple steps.
Some of you might feel a sense of anti-climax at this moment. But as I explained right at the beginning of this piece, the simplest and most powerful steps do not take lengthy arguments, clichés, jargon and polemics to be argued. Just think about it. No one can deny that the Indian farmer needs to share spoils of globalization. What happens if farm productivity in India touches the level of China? The annual income of the Indian farm sector would simply double very quickly. This would have a huge impact on the other sectors of the economy as well, and India’s GDP can actually grow at a rate much faster than 10% every year. The truth of it all is that, in the real sense, it is also going to benefit the corporate sector immensely. For once the poor have purchasing power, it is the corporate sector which will reap the benefits like the Chinese corporations are doing.
The real question is: will our system make an effort to go back to the Do Dooni Chaar ways or stick with the current obsession with Do Dooni Paanch?
(The article first appeared in "Business & Economy". The views expressed in the write-up are personal and do not re?ect the official policy or position of the organization.)
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