Wednesday, March 17, 2010

Highlights of the Finance Minister Pranab Mukherji's budget speech (2010-2011) delivered on 26 February, 2010

· During 2009, growth had started decelerating and the business sentiment was weak. The economy's capacity to sustain high growth was under serious threat from the widespread economic slowdown in the developed world.

· There was uncertainty on account of the delayed and sub-normal south-west monsoon, which had undermined the kharif crop in the country. There were concerns about production and prices of food items and its possible repercussions on the growth of rural demand.

· The economy stabilised in the first quarter of 2009-10 itself, when it clocked a GDP growth of 6.1 per cent, as against 5.8 per cent in the fourth quarter of the preceding year. It registered a strong rebound in the second quarter, when the growth rate rose to 7.9 per cent. The Advance Estimates places the likely growth for 2009-10 at 7.2 per cent.

· The growth rate in manufacturing in December 2009 was 18.5 per cent— the highest in the past two decades. There are also signs of a turnaround in the merchandise exports with a positive growth in November and December 2009 after a decline of about twelve successive months.

· A major concern during the second half of 2009-10 has been the emergence of double digit food inflation. There was a momentum in food prices since the flare-up of global commodity prices preceding the financial crisis in 2008, but it was expected that the agriculture season beginning June 2009 would help in moderating the food inflation. However, the erratic monsoons and drought like conditions in large parts of the country reinforced the supply side bottlenecks in some of the essential commodities. This set in motion inflationary expectations. Since December 2009, there have been indications of these high food prices, together with the gradual hardening of the fuel product prices, getting transmitted to other non-food items as well. The inflation data for January seems to have confirmed this trend.

· A Nutrient Based Subsidy policy for the fertiliser sector has been approved by the Government recently and will become effective from April 1, 2010. This policy is expected to promote balanced fertilization through new fortified products and focus on extension services by the fertiliser industry. Over time, the policy is expected to reduce volatility in the demand for fertiliser subsidy in addition to containing the subsidy bill. Government will ensure that nutrient based fertiliser prices for transition year 2010-11, will remain around MRPs currently prevailing. The new system will move towards direct transfer of subsidies to the farmers.

· Provide further capital to strengthen the RRBs (regional rural banks) so that they have adequate capital base to support increased lending to the rural economy.

· The Government intends to follow a four-pronged strategy covering (a) agricultural production; (b) reduction in wastage of produce; (c) credit support to farmers; and (d) a thrust to the food processing sector.

--The first element of the strategy is to extend the green revolution to the eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern UP, West Bengal and Orissa, with the active involvement of Gram Sabhas and the farming families. For the year 2010-11, Rs.400 crore will be provided for this initiative. Proposal to organise 60,000 "pulses and oil seed villages" in rain-fed areas during 2010-11 and provide an integrated intervention for water harvesting, watershed management and soil health, so as to enhance the productivity of the dry land farming areas. Rs.300 crore will be provided for this purpose. This initiative will be an integral part of the Rashtriya Krishi Vikas Yojana. More focues on conservation farming, which involves concurrent attention to soil health, water conservation and preservation of biodiversity. An allocation of Rs.200 crore will be made for launching this climate resilient agriculture initiative.

--The second element of the strategy relates to reduction of significant wastages in storage as well as in the operations of the existing food supply chains in the country. The deficit in the storage capacity is met through an ongoing scheme for private sector participation where the FCI has been hiring godowns from private parties for a guaranteed period of 5 years. This period is now being extended to 7 years.

--The third element of the strategy relates to improving the availability of credit to farmers. For the year 2010-11, the target has been raised to Rs.3,75,000 crore from Rs.3,25,000 crore in the current year. Under the Debt Waiver and Debt Relief Scheme for Farmers, there is proposal to extend by six months the period for repayment of the loan amount by farmers from December 31, 2009 to June 30, 2010. The effective rate of interest on short-term loans for farmers who repay on timely basis will now be five per cent per annum.

--The fourth element of the strategy aims at lending a further impetus to the development of food processing sector by providing state-of-the art infrastructure. In addition to the ten mega food park projects already being set up, the Government has decided to set up five more such parks. As a part of the farm to market initiative, External Commercial Borrowings will henceforth be available for cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.

· The Jawaharlal Nehru National Solar Mission envisages establishing India as a global leader in solar energy. An ambitious target of 20,000 MW of solar power by the year 2022 has been set under the mission. There will be an increase in the plan outlay for the Ministry of New and Renewable Energy by 61 per cent from Rs.620 crore in 2009-10 to Rs.1,000 crore in 2010-11.

· In order to set up solar, small hydro and micro power projects in Ladakh region of Jammu and Kashmir, an allocation of Rs.500 crore will be made.

· A one-time grant of Rs. 200 crore to the Government of Tamil Nadu towards the cost of installation of a zero liquid discharge system at Tirupur to sustain hosiery industry

· The draft Food Security Bill will be placed in the public domain very soon. To fulfil these commitments, the spending on social sector has been gradually increased to Rs.1,37,674 crore which now stands at 37 per cent of the total plan outlay in 2010-11. Another 25 per cent of the plan allocations are devoted to the development of rural infrastructure.

· About 98 per cent of habitations are now covered by primary schools. There will be an increase in the plan allocation for school education from Rs.26,800 crore in 2009-10 to Rs. 31,036 crore in 2010-11. In addition, States will have access to Rs.3,675 crore for elementary education under the Thirteenth Finance Commission grants for 2010-11.

· An Annual Health Survey to prepare the District Health Profile of all Districts shall be conducted in 2010-11. There will be an increase in the plan allocation for the Ministry of Health and Family Welfare, from Rs. 19,534 crore to Rs. 22,300 crore for 2010-11.

· An augmentation of Rs.100 crore for each of the Financial Inclusion Fund and a Financial Inclusion Technology Fund, which shall be contributed by Government of India, RBI and NABARD.

· For the year 2010-11, Rs.66,100 crore will be made available for rural development. Mahatma Gandhi National Rural Employment Guarantee Scheme has completed four years of implementation during which it has been extended to all districts covering more than 4.5 crore households. The allocation for NREGA has been stepped up to Rs.40,100 crore in 2010-11. Bharat Nirman has made a substantial contribution to the upgradation of rural infrastructure through its various programmes. For the year 2010-11, there will be an allocation of Rs. 48,000 crore for these programmes.

· The Rashtriya Swasthya Bima Yojana will extend its benefits to all such Mahatma Gandhi NREGA beneficiaries who have worked for more than 15 days during the preceding financial year.

· The unit cost of construction under this Indira Awas YOjana is raised to Rs.45,000 in the plain areas and to Rs.48,500 in the hilly areas. For the year 2010-11, the allocation for this scheme is being increased to Rs.10,000 crore.

· There will be an enhancement in the allocation to Backward Region Grant Fund by 26 per cent from Rs. 5,800 crore in 2009-10 to Rs. 7,300 crore in 2010-11.

· Allocation of Rs. 1,270 crore for 2010-11 as compared to Rs. 150 crore last year for Rajiv Awas Yojana for slum dwellers. This marks an increase of over 700 per cent.

· Micro, Small and Medium Enterprises (MSMEs) contribute 8 per cent of the country's GDP, 45 per cent of the manufactured output and 40 per cent of our exports. They provide employment to about 6 crore persons through 2.6 crore enterprises. A High Level Council on Micro and Small Enterprises will monitor the implementation of the recommendations and the agenda for action. Allocation for this sector will be raised from Rs. 1,794 crore to Rs. 2,400 crore for the year 2010-11.

· The fund corpus for 'Micro-Finance Development and Equity Fund' is being doubled to Rs. 400 crore in 2010-11.

· As a follow up to the Unorganised Sector Workers Social Security Act, 2008, it has been decided to set up a National Social Security Fund for unorganised sector workers with an initial allocation of Rs. 1,000 crore. This fund will support schemes for weavers, toddy tappers, rickshaw pullers, bidi workers etc. To encourage the people from the unorganised sector to voluntarily save for their retirement and to lower the cost of operations of the New Pension Scheme (NPS) for such subscribers, Government will contribute Rs. 1,000 per year to each NPS account opened in the year 2010-11. This initiative, "Swavalamban" will be available for persons who join NPS, with a minimum contribution of Rs. 1,000 and a maximum contribution of Rs. 12,000 per annum during the financial year 2010-11. The scheme will be available for another three years. An allocation of Rs. 100 crore for the year 2010-11 has been made. It will benefit about 10 lakh NPS subscribers of the unorganised sector.

· The plan outlay for Women and Child Development will be raised by almost 50 per cent. A Mahila Kisan Sashaktikaran Pariyojana to meet the specific needs of women farmers is being launched. Rs. 100 crore will be provided for this initiative as a sub-component of the National Rural Livelihood Mission. Allocation of Rs. 1,900 crore to the Unique Identification Authority of India (UIDAI) for 2010-11.


Thursday, March 11, 2010

‘Growth versus Development: Rural Urban Continuum’

The first lecture of the Knowledge Lecture series titled ‘Growth versus Development: Rural Urban Continuum’ was delivered by Prof. Dipankar Gupta at Centre for Information Technology (CIT) Auditorium, Jamia Milia Islamia on 9 March, 2010. Prof Gupta is an eminent Social Scientist and former Professor of Sociology at Jawaharlal Nehru University (JNU). The programme was inaugurated by Prof. Biswajit Das, Director, Centre for Culture, Media and Governance, JMI and chaired by Shri Najeeb Jung, IAS.

Prof. Dipankar Gupta informed that organized sector employment has remained stagnant during the post-1991 period, thus providing only 23 to 24 million jobs. There exists not enough demand for information technology (IT) and IT enabled services (ITeS) within India. Hence these sectors depend primarily on exports. Much of the growth is actually taking place in the unorganized sector. About 93 percent of the workforce is employed in the informal sector and 74 per cent of this is in rural India. The small and informal enterprises have grown by over 110 percent in the past 25 years.

He shared his experience when he was working with KPMG, which is one of the largest professional services firms in the world and one of the Big Four auditors, along with PricewaterhouseCoopers (PwC), Deloitte Touche Tohmatsu (Deloitte) and Ernst & Young (EY). While auditing the books of many of the big manufacturing firms, he noticed that firms do not possess sufficient financial and account records. This happened since most of the big firms were engaged in outsourcing their manufacturing processes. Manufacturing work got outsourced over and over again to smaller and smaller units including the informal small scale industrial sector so as to reduce cost and risk and increase efficiency. Prof. Gupta was unable to access the books to know the accounts detail.

Prof. Gupta informed that within the informal sector, there is no social security. Roughly, 27 percent of the export was from this sector. In the recent years, 80% of the overall growth in the economy was contributed by unorganized small-scale sector. However, formal credit accessed by such units is meager. Carpet industry, gems and jewellery etc are part of this sector. Subletting of contract is deep in the case of carpet industry. Since cost of production is low, India has a good export market for carpets. People employed here don’t want their children to be employed in the carpet industry.

In India, villagers are undergoing rural crises. Old fashioned policy recommendations like land reforms won’t help us. There is little land left to be reformed. 85 percent of the rural land holding size comes below 5 acres. Those possessing 50 acres of land may watch fragmentation of land sooner or later. There is little opportunity left before the rural poor. That is why we find confrontation taking place between land owners and land have-nots during the harvesting seasons. The owner-cultivators are no longer rich, Prof. Gupta emphasized. Mahendra Singh Tikait who formed the Bhartiya Kisan Union was once termed as a kulak farmer. But he is from a lower middle class status if we judge him from an urban point of view. He was wrongly classified as a rich kulak farmer by the academicians. Land owners in rural India are no longer rich.

Roughly, 50% of the rural economy is not agricultural. So we may doubt India as rural society. Farmers know farming. But they don’t have sufficient land and capital to farm. 40 percent of the rural households In Bihar are non-agricultural. Merely 25 per cent of Bihar’s urban population lives in industrial centres. Due to distress migration, we find daily labourers waiting near chowks to get work in the cities.

Village oligarchs can no longer call the shots. Emergence of lower caste politics started happening with the breakdown of the rural oligarchy. Owner-cultivators do not pay regularly to the labourers and the share-croppers. Hence, the labourers try to find alternative sources of livelihood. They even work as rickshaw pullers and coolies.

People employed in the unorganized sector have very low level of skill. They seldom upgrade their skill set. However, in the organized sector, there is prestige associated with the job along with social security. There is possibility of moving up the ladder. One may upgrade his/ her skill-set in the organized sector.

The percentage of those who are literate among the working class has gone up. But the percentage of those who have received higher education among the working class has gone down. Factories employ under-skilled labourers. They seldom upgrade themselves.

India must learn from the West, particularly the United States so as to provide higher standards of living to its workers. There must be higher public investment in education and health. About 80 percent of the health expenditure is out of pocket expenditure in the case of India, Prof. Gupta informed. Apart from higher costs of agricultural inputs, indebtedness is caused by higher out-of-pocket expenditure on health. Our health system is collapsing. Expenditure on research and development (R&D) is falling down in monetary terms.

Village economy is collapsing since agriculture is no more profitable. Input prices are higher than before. There is unreliable supply of electricity. Horticulture and floriculture will not help as land is fragmented. The way out of the agrarian crisis is technological solutions. Land to the tiller programme could not help the farmers. Contract farming may be the way out of the rural crises. Some people do not sell land due to conservative reasons. Others think that land is the only social insurance they have. Labour needs to be shifted out of agriculture. We must know that India has a surplus in cheap labour and they need to be employed somewhere else.

Big cities are growing because of migration of unskilled labourers. But small and medium towns are growing faster than the big cities since rural graduates move to these towns and they do not migrate to big cities. Migrant labourers want their children to be educated.

Prof. Dipankar Gupta mentioned that advanced economies like France, Italy, Spain, Germany and Scandinavia are only 2-3 per cent rural, which is an indication of their prosperity.

Finally, Prof. Dipankar Gupta said that we need to act as elites at the national level to get things done and to make our government stronger. He asked for strengthening the public sector, which can deliver the most.

While commenting on Prof. Gupta’s speech, Shri Najeeb Jung said that the health system has collapsed in the capital of India i.e. Delhi. Urban poor do not have access to health care. The quality of health care provided is poor.