Home > Archives (2006 on) > 2011 > Central Budget 2011-12 in the Context of the Rural Sector

Mainstream, Vol. XLIX, No 14, March 26, 2011

Central Budget 2011-12 in the Context of the Rural Sector

Monday 28 March 2011, by Kripa Shankar

The revenue receipt of the Union Government for 2011-12 is estimated at Rs 7.9 lakh crores and net borrowing at Rs 4.1 lakh crores. The Central Plan outlay is estimated at Rs 5.9 lakh crores. In other words, borrow funds account for 52 per cent of the total receipts and finances 70 per cent of the Plan outlay. If the government depends on borrowings to finance the bulk of the Plan outlay there will be serious limitations in raising the quantum of expenditure on various develop-ment heads. The total budgetary expenditure at Rs 12.6 lakh crores is higher by three per cent over the revised estimates of 2010-11 but if we take inflation into consideration expenditure in real terms is lower than what it was in 2010-11.

The most disturbing aspect of the Plan outlay is that the same on agriculture and all allied activities like soil and water conservation, animal husbandry, agricultural research, cooperation, storage, agricultural insurance etc. is slated at Rs 14,744 crores only or 2.5 per cent of the Plan outlay.

If we take the total budgetary expenditure, it constitutes only one per cent of the total expenditure. Consequently there is only token provision for various heads. The total budgetary expenditure for rural godowns is Rs 130 crores. It is well known that in the absence of rural godowns, producers are forced to sell to the middlemen at very low prices as they have no holding capacity. The cooperative rural godowns can arrange bank finance on the collateral of the stored produce to meet the immediate needs of the farmers which will obviate the necessity to sell to private traders and middlemen. Food inflation, which is almost wholly the doing of traders, could have been prevented while ensuring remunerative prices to the farmers.

Roughly 16,000 farmers continue to commit suicide every year because of their inability to repay loans on account of crop failure. All cars and two wheelers in the country are insured and as a matter of fact all car owners enjoy government subsidy of over Rs 10,000 each but there are no funds to provide crop insurance which has been allotted Rs 1150 crores only. This is much lower than the Rs 3162 crores provided in the Budget of 2010-11.

CONSERVATION of the rainwater through various devices has acquired great importance as irrigation through ground water resources, which has been the main source of irrigation, is in jeopardy on account of the falling ground water table. Despite an annual expenditure of over Rs 60,000 crores on major, medium and minor irrigation works both by the Centre and State governments, the irrigated area through canals is hardly increasing. One-third of the rainwater goes waste in the absence of proper storage facilities. What is required is to conserve every drop of rainwater through water harvesting structures like dug wells, ponds, check-dams etc., more so in the rainfed areas. The Panchayats can do it more economically but they have no resources of their own and grants from the State and Central governments are only minuscule. The Central Government’s current budget for Panchayats is Rs 5250 crores which includes an amount of Rs 5050 crores towards the Backward Region Grants Fund. The Centre has a separate Department of Land Resources under which Rs 2549 crores has been provided for the integrated watershed programme that is wholly inadequate given the needs of water harvesting. As a matter of fact, roughly four crore hectares of land in the country remain unutilised precisely because there is no attempt to conserve the rainwater in such areas which alone can lead to its productive use in some form. About 2.5 crore hectares of land, that are lying as cultivable waste and permanent fallow lands, can be brought under cultivation only if irrigation could be provided and increased through widespread watershed development.

The workforce in the country is rising by about 80 lakhs per annum. Despite a growth rate of about eight per cent in the industrial sector, there is no increase in employment due to introduction of more sophisticated technology. In the immediate future the bulk of the workforce, particularly in the rural areas, can be provided with work in the construction and regeneration of rural infrastructure. Construction of small irrigation sources, conservation of rainwater, land improvement activities, construction of roads and godowns etc., have vast employment potential but all such activities have gone by default in the absence of public funding. Now the MGNREGA has been introduced to provide jobs to the rural population which had been long overdue but the allocation for it can by no means be said to be commensurate with the requirements. The current Budget has a provision of Rs 40,000 crores towards it but this is not higher than what it was in the previous year. If inflation is taken into consideration it is even lower than last year’s allocation.

If assured irrigation is provided, labour absorption within the agricultural sector will also increase as is the case in many countries. Only 40 per cent of the agricultural land is irrigated. The Central Budget allocation for irrigation and food control is Rs 1223 crores which constitutes only 0.001 per cent of the total budgetary expenditure although the States have larger allocation for irrigation but 70 per cent of it goes to the establishment.

There is great possibility of developing animal husbandry. The resource poor can start some remunerative activity with small capital but the situation is such that where there is deep poverty people may not afford to keep even a goat. The budgetary allocation for animal husbandry, dairying and fisheries is only Rs 1696 crores which also goes mainly for maintenance of the staff.

Shortage of power is a great impediment for growth but the budgetary expenditure on it at Rs 9505 crores constitutes only 0.007 per cent of this total expenditure. Micro, small and medium enterprises employ bulk of the population engaged in manufacturing. Their contribution in the industrial sector is around 40 per cent although they have to face strong competition from large organised units but the budgetary allocation at Rs 3000 crores forms only 0.002 per cent of the total expenditure.

Tribals constitute eight per cent of the popu-lation and happen to be the most downtrodden. The developmental process had led to their alienation from land and homestead in millions. But the expenditure on tribal development is slated at Rs 1447 crores. The police budget has been raised to Rs 30,000 crores, among others, to contain Left extremism among tribals. As a matter of fact, the police budget is higher than the combined expenditure on agriculture and all allied activities, irrigation, land development and water resources, Panchayati Raj and development of micro, medium and small enterprises.

The government’s unwillingness to tax the richer sections and to favour them by all means has resulted in a situation where the tax-GDP ratio at 10 per cent is considerably lower than in most of the other countries. Besides there are exemptions galore which, according to the Budget papers, results in a loss of over Rs 5 lakh crores every year. The income tax rate on the highest slab was 50 per cent in the early nineties which has been reduced to 30 per cent as at present. Similarly the corporation tax has been lower than 30 per cent. Dividend tax, gift tax, estate duty have all been abolished. The wealth tax of two per cent on the market value of shares was abolished in 1992. Had all these taxes continued and there would have been no lowering of the rate of income tax and corporation tax, not only would there have been no necessity for borrowing but the Plan expenditure could have been raised manifold but the government of the richer classes cannot go against its own interests.

The Budget has nothing to offer to the poor. One way could be to grant hassle-free instant loans to them to invest in some modest income generating activity like rearing of milch animal, goat rearing, piggery, poultry and the like. The Centre can guarantee such loans in the same manner as it guarantees the loan of big entities. The banks in that case will not desist from lending to the poor. If loans to them are provided, say, at four per cent, an interest subsidy may be given to the banks to make up for their loss. Every car owner gets a subsidy on petrol and diesel. An interest subsidy of Rs 20,000 crores can enable the banks to distribute loans worth Rs 2 lakh crores to the poor at an interest rate of four per cent. This will herald a new beginning for them as they can now join the mainstream and may not remain marginalised.

The author is an Honorary Fellow, G.B. Pant Social Science Institute, Allahabad.

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