Not really an agri-push

The key highlight of the Budget is the Rs 60,000 crore splurge on the farm sector in loan waivers for small and marginal farmers up to Rs 50,000 crore and a one-time settlement for other farmers up to Rs 10,000 crore.

That may well be the most visible and election friendly manner of doling out largesse. It is, however, not the most economically feasible manner of lending support to a sector which requires serious investment and tough policy measures to make such investment feasible.

"Loan waivers are neither good economics nor good politics. Most of the small and marginal farmers do not have access to credit at all. Through these waivers we again brand farmers as non-credit worthy," says Amir Ullah Khan, Director, India Development Foundation. "Again we misunderstand the problem of the Indian farmer. They do not give the farmers roads, power or anything of consequence."

In fact, Khan believes a better mechanism would have been to provide a direct subsidy of, say, Rs 15,000 to every small farmer which would have at least put some money in their hands.

Siddhartha Roy, Economic Advisor to the Tata Group, concurs: "It is important to figure out who will benefit from the waiver measure. It would be better had the Budget focussed more on income-generating measures for small and marginal farmers inside as well as outside agriculture. Budget is somewhat silent on non-farm employment in rural and backward areas as well as the SEZs."

In fact, the mechanism of the loan waiver has not been spelt out in the Budget documents. And this determined implementation of the scheme by June 30, 2008 seems more like preparation for election rather than an effort to boost agriculture.

Though happy with the measures, M.S. Swaminathan, Chairman of Chennai-based M.S. Swaminathan Research Foundation, says: "While the Budget provides relief to those who have borrowed from institutional lenders, mechanisms have to be devised for those left out."

Rana Kapoor, MD and CEO of YES Bank, too, is sanguine about the waiver but concedes, "the waiver of farm loans is a short-term strategy without seriously addressing structural issues." However, what has been disappointing is the lack of long-term goal setting for the sector, which urgently needs sustained investment.

Addressing structural issues, mainly supply side constraints in agriculture, is, however, crucial to tame what is the next big problem for the economy—inflation. Rising prices of primary food articles, which constitute a large part of the inflation basket, is expected to put severe pressure on the economy in the months ahead.

In the last two years alone, world prices of crude oil, commodities and food grains have risen sharply. The international prices of commodities such as wheat more than doubled in this period. In the case of rice the increase has been a sharp 55 per cent. And the Reserve Bank of India and the Economic Advisory Council both concur that it will be a tough year ahead on inflation.

"The management of supply side would remain a crucial task. Food availability would emerge as the biggest challenge over the next 10-12 months. So, we need to go in for strategic grain management practices," says V.Shunmugam, Chief Economist, MCX.

High interest rates add to the problem. Putting pressure on interest rates adversely affects both savings and investment. In such a scenario, increasing government expenditure will only put pressure on inflation. And high inflation always hurts the poor, thus affecting the constituency that the Budget attempts to please.