Neoliberal roots

At Karrai village in Madhya Pradesh's Sheopur district. Eighty-seven per cent of people in rural India do not get the basic requirement of 2,400 calories a day.-A.M. FARUQUI

The agrarian crisis can be traced to policies prescribed by the IMF and the World Bank and faithfully carried out by successive governments.

The judgment one reaches on what the current years Budget will do for farmers will vary depending on whether its provisions are seen as a sui generis exercise or are viewed within a longer term perspective that encompasses an awareness of the continuing and relentless drive to implement neoliberal policies by the triumvirate constituted by Prime Minister Manmohan Singh, Finance Minister P. Chidambaram and Planning Commissions Deputy Chairman M.S. Ahluwalia the very same policies that have brought about agrarian depression in the first place.

Those lacking a long-term perspective would hail uncritically the measure relating to debt waiver, but a correct perspective on the causes of the agrarian depression will result in the measure being seen as a partial, and cynically much-delayed, one which is likely to benefit the banking sector more than farmers.

The single most important provision is a Rs.60,000-crore one-time waiver of institutional debts of farmers possessing below two hectares which actually is not a budgetary measure at all but has been announced as part of the Budget speech. It means that the government will relieve the banking sector of the bad loans to farmers, which in any case have no chance of ever being repaid, and this is most likely to be done through the time-honoured method of the government issuing interest-bearing papers (bonds) to the banks, which will replace these bad loans in the banks asset portfolio and yield them an assured interest income. The resource commitment of the government will only be the annual interest payments say, around Rs.4,000 crore, assuming an interest rate of 6 to 7 per cent on government paper that would be nominally worth Rs.60,000 crore.

The benefit to the banks is obvious they will have guaranteed interest income in place of non-interest yielding bad debts of farmers. Farmers with below two hectares will have some peace of mind if part of their debt is from banks since they will no longer be hounded by bank collecting agents. But they will still be hounded by private moneylenders because agriculture will still be unviable and they are still most unlikely to be able to repay any fresh loans they contract.

The debt waiver measure is not relevant for about three-fifths of all outstanding farm debts which are to private moneylenders and not to the banking system. And it completely excludes lakhs of poor farmers with over two hectares of arid land in the low-rainfall regions of Vidarbha, Telangana, Gujarat, and so on, who are sinking deeper into indebtedness and despair.

Writing off the bad debts of small farmers is so easy for the government and involves so little cost that it should have been done immediately after the United Progressive Alliance was voted to power in 2004 by millions of farmers and workers who hoped for some relief and measures to tackle their debt to private moneylenders. This should have been undertaken in a phased manner over the next three years.

Far from providing debt relief or addressing the problems of farm depression and suicides, which had been already going on for seven long years since 1998, the immediate action of the UPA government was to notify the Fiscal Responsibility and Budgetary Management Act, which had been tabled in Parliament by its predecessor, the National Democratic Alliance (NDA) at the behest of the International Monetary Fund. And the new Finance Minister at once proceeded to reduce the ratio of fiscal deficit to the gross domestic product (GDP) as required by the Act, mainly through cutting real expenditure on rural development and employment generation, thus violating the clear mandate of the people, betraying their hope for betterment and deepening the agrarian depression further.

On the insistence of the Left and other progressive forces, the National Rural Employment Guarantee Act (NREGA) was passed and its implementation started in February 2006. However, the budgetary support given to it by the Finance Minister was trivial only one-tenth more than the money spent by the NDA government on employment generating programmes and no directive went out from the Central government conveying a sense of urgency in implementing the Act.

Even as the NREG Programme (NREGP) was nominally extended to more districts in the 2007 Budget, the Finance Minister actually cut the previous years allocation for it by about one-tenth, to Rs.12,000 crore, thus sending the signal that it was not really to be taken seriously. No amount of full-page advertisements by the government in newspapers with the slogan Let us make India a Republic of Work can alter the fact that in reality the NREG has not been given the requisite funding or made part of a sincere and urgent policy thrust of the Central government. Such gimmicks, including a recent full-page advertisement hailing the bank debt waiver, merely bring back unpleasant memories of the NDAs India Shining campaign of early 2004.

Promising funds for the NREGP as the demand grew, as the Finance Minister has done, is a very different matter from making prior and adequate budgetary provisions. The initial allocation should have been of the order of at least Rs.16,000 crore in 2004 itself, and raised year by year to reach Rs.22,000 crore by now.

Combined with an urgent directive to all district administrators to implement the NREGP, it would have helped greatly in restoring aggregate demand in the rural economy. Instead, the per capita real income of the more than two-thirds of our total population dependent on agriculture and allied activities is substantially lower today than it was five years ago.

Expenditure data from the National Sample Survey Organisations 61st Round (2004-05) show that rural and urban per capita cloth consumption, real food expenditure, and calorie intake have all declined from their already low levels since 1993-94. This country remains a Republic of Hunger with a larger proportion of ordinary people being relentlessly pushed down to worse nutritional status. As the tables show, the proportion of rural population unable to access 2,400 calories daily climbed from 75 per cent in 1993-94 to a record high of 87 per cent by 2004-05.

The corresponding percentages for urban India, where the nutrition norm is lower at 2,100 calories, are 57 and 64.5. The situation is much worse in the major metros for instance, the deepening of undernutrition in Maharashtra, reflecting mainly the situation in Mumbai, is remarkable, with 85 per cent of persons going below an intake of 2,100 calories compared to 52.5 per cent a decade earlier. The proportion of those in extreme poverty intake of under 1,800 calories doubled to 52 per cent.

In his latest Budget speech, the Finance Minister proudly announced that the fiscal deficit was down to 2.5 per cent of the GDP. There is no rationale in economic theory for expenditure-deflating measures and fiscal conservatism of this type when agrarian depression, unemployment and hunger are growing: on the contrary, what was required was a strongly expansionary fiscal stance to lift the agrarian sector in particular out of depression.

But such a stance is anathema to the IMF and the World Bank and our so-called leaders do not have the guts to oppose the global moneylenders; on the contrary it is their faithful implementation of the neoliberal agenda that led to the present endemic farm depression.

Successive Finance Ministers since 1991 Manmohan Singh in the P.V. Narasimha Rao government, P. Chidambaram in the United Front government, Yashwant Sinha in the NDA government and again Chidambaram for five budgets in the UPA government have pressed relentlessly on with Fund-guided deflationism, focussing the attack on the vast unorganised sector, including farmers. This sector is an easy target of misguided expenditure deflation because its very nature makes organisation and resistance difficult. A relatively well-functioning agricultural sector up to the early 1990s has been in a shambles where food output is stagnant and lakhs of farmers commit suicide in front of our very eyes.

Every single one of the persons mentioned bears direct responsibility for the present debacle because it is their systematic and deliberate implementation of IMF-guided policies that has led to the outcome we observe.

To this day no steps have been taken to reverse the basic policy thrust towards expenditure deflation and trade liberalisation on the contrary, these are still being touted as the solution to the very problems they have created. Why did the farmers debts to banks become bad debts in the first place? Are institutional debts (debts to banks and cooperatives) the main form of indebtedness that is still driving farmers to suicide?

The story starts from 1991 when Manmohan Singh as Finance Minister started hounding farmers by reducing the fertilizer subsidy, cutting development expenditures so sharply that per capita GDP actually fell in one year and the death rate rose in one State, virtually doubling the issue prices of foodgrains from the Public Distribution System over three years in order to cut the food subsidy (which predictably boomeranged since the poor were priced out and the first episode of build-up of 32 million tonnes of unsold food stocks took place by 1995).

By redefining priority sector lending, the M. Narasimhan Committee Report on financial liberalisation marked a continuation of the relentless attack on farmers and small producers.

After Indira Gandhis bold move for bank nationalisation in 1969, agriculture and small-scale industries had been treated as priority sectors, which received institutional credit at easier rates of interest: all that was scrapped in 1994, as a redefinition of priority sector to include large institutional borrowers which led to farmers and small producers being denied adequate bank credit. This drove them increasingly into the arms of moneylenders, who charge between Rs.3 and Rs.5 per Rs.100 a month as interest, which resulted in interest exceeding principal in a matter of two to three years.

By 1996, Manmohan Singh had succeeded in reducing rural development expenditures as a per cent of Net National Product to 2.6 compared to nearly 4 per cent during the pre-reform Seventh Plan. Through multiplier effects, the decline of rural employment and incomes as a result of expenditure deflation, had already been affecting this sector badly. When the United Front was in power for a brief period, it was misled by Bank-Fund propaganda into introducing the disastrous policy of targeting the food subsidy by arbitrarily dividing the population into those above and below poverty line. This excluded millions of the actually poor from access to affordable foodgrains.

During the NDA period, the complete submission of the government to U.S. pressure and rapid removal of protection to agriculture between 1996 and 2001 before the deadline set by the World Trade Organisation, resulted in farmers being exposed to the fury of global price declines. Between 1996 and 2001, prices of all primary products (cotton, jute, food grains and sugar) fell by 40 to 60 per cent and farmers who had contracted private debts in particular, became insolvent. The syndrome of hopelessly-indebted farmers committing suicides in Andhra Pradesh and Punjab started in 1998 and rapidly spread to other areas where cultivation of cash and export crop was predominant. The crash in pepper, coffee and tea prices came a few years later after 1998 and farmer suicides in Kerala and insolvency of tea estates in West Bengal date from around 2002.

The UPA government has also exacerbated the problems of export crop producers by entering into regional trade agreements without consulting the States that would be most affected by those agreements. The RTA with Sri Lanka, for example, has meant coffee and coconut products pouring in from Indonesia and Vietnam through the open door of Sri Lanka.

In the meantime, falling rural incomes meant a sharp reduction in aggregate demand for basic foodgrains. As the purchasing power of the masses fell, the second episode of build-up of unsold public food stocks occurred, which by July 2002 was a massive 64 million tonnes.

The NDA government exported 22 million tonnes out of stocks during the worst drought period of 2002 and 2003, at a highly subsidised rate for feeding European animals, at a time when the average Indian family was absorbing 120 kg less of grains a year. It is hardly surprising that the 61st Round NSS data show a steep rise in the proportion of undernourished people not only in rural areas but also in urban India compared to 1993-94.

Most alarming is the situation of the Scheduled Castes and Tribes, among whom extreme poverty has increased dramatically during the reform decade, with over three-fifths moving under the lowest level of intake, 1800 calories, by 2004-05 in urban India.

How committed the government is to food security can be judged by the fact that it has been systematically running down the PDS, and cutting the allocation of grains from the Central pool to the States, steeply so in the case of the Left-ruled States. The theoretical basis for allocation cuts is the claim that poverty, both rural and urban, has declined. But this claim itself is based on statistical trickery and has no grounding in reality. On the contrary, poverty has risen steeply between 1993-94 and 2004-05.

The Planning Commission procedure for poverty estimation is unacceptable because it has abandoned its own nutrition norms for measuring poverty. It used these norms only once, over three decades ago in 1973-74, to fix the poverty lines of Rs.49 and Rs.56 (consumption expenditure) for rural and urban India. All the data from the NSS every five years, showing the actual current cost of accessing the nutrition norms, have been completely ignored for 30 years. Instead, the poverty line determined in 1973-74 are simply updated using price indices, which means multiplying those lines by a factor lying between seven and 10 respectively to give Rs.356 and Rs.539 as the official poverty lines for rural and urban areas by 2004-05. This method does not capture the actual change in the cost of accessing minimum nutrition; nor does the government or the Finance Commission ever use only price index adjustment for fixing the salaries of public employees.

Nutrition data from the NSS 61st Round (2004-05) show that a person needed to spend Rs.795 in rural and Rs.1,000 in urban India a month to access 2,400 and 2,100 calories respectively, while the severely underestimated official poverty lines for that year are only Rs.356 and Rs.539, half or less than half the actual requirement, at which only about 1,800 calories could be accessed. It is easy to claim that poverty has come down simply by reducing the consumption standard but this is a spurious method.

This is similar to claiming that academic performance has improved because the percentage of failures in university examinations has gone down, say, from one-third to nil over 30 years after lowering the pass mark from 40 to 10 over the same period. Most bizarre is the claim by some academics that extreme poverty defined as persons spending below half the official poverty line, has disappeared by 1999-2000. Looking at the data we find that no households could survive at spending levels that give only around 1,000 calories or less daily just as there would be zero failures in examinations if the pass mark is lowered to zero.

Given the reality of deepening undernutrition, the Budget should have faced up to this reality and made provisions for an increase in the food subsidy to expand the operations of the PDS. Instead, precisely the opposite steps have been taken. In real terms, the food subsidy is stagnant, and the proposal to remove the so-called above poverty line persons, who are actually very poor, from the ambit of the PDS will simply worsen the problem of deepening hunger.