The benefits to the MSMEs would be much lower than what the Budget speech shows. In fact, that’s the general trend in the Budget; the FM has talked about many good things- from rejuvenating rural India to universal health coverage to doubling farmers’ income. But when it came to fund allocations, he seems to have left a large gap between aspirations and reality.
A budget is as good as its premises are. Thus, it will be more meaningful to look at the Union Budget 2018-19 in relation to its premises than to see it in isolation with what the Finance Minister, Arun Jaitley, has and hasn’t done. What were the premises of the Budget? Or, to be more specific, what were the basic, stated intentions of the government, which it sought to address in the Budget?
The Finance Minister was euphoric that the GDP growth, at 6.3% in the second quarter, has signaled the turnaround of the economy. The economy would grow at 7.2% to 7.5% in the second half. The IMF, in its latest update, has forecast that India will grow at 7.4% next year. The economy is now firmly on course to achieve high growth of 8% plus, the FM announced in his Budget speech.
The question is: Whose GDP it is? Would lives of the rural masses improve or would the benefits of higher growth go to pockets of a few? The Economic Survey, published before the Budget, has in fact, sought to give certain guidelines.
The executive agenda of the government for the next year would revolve around stabilising the GST, completing the Twin Balance Sheet actions, privatising Air India, and staving off threats to macro-economic stability, the Survey has said.
As for policy focus, the Survey has identified three areas for medium term actions: (a) Employment: Finding good jobs for the young and burgeoning workforce, especially for women. (b) Education: creating an educated and healthy labour force. (c) Agriculture: raising farm productivity while strengthening agricultural resilience. Above all, India must continue improving the climate for rapid economic growth on the strength of the only two truly sustainable engines—private investment and exports.
Putting special emphasis on the rural sector, agriculture particularly, topped the list. The country was expecting this because of repeated promises made by the Prime Minister Modi and his team members before the Budget. Very early in his speech, Jaitley declared that the “Government is committed to the welfare of farmers. For decades, the country’s agriculture policy and programme had remained production-centric. We have sought to effect a paradigm shift. The Honourable Prime Minister gave a clarion call to double farmers’ income by 2022 when India celebrates its 75th year of independence. Our emphasis is on generating higher incomes for farmers. We consider agriculture as an enterprise and want to help farmers produce more from the same land parcel at lesser cost and simultaneously realise higher prices for their produce. Our emphasis is also on generating productive and gainful on farm and non-farm employment for the farmers and landless families.”
The Nudget announcements for the farm sector come against the backdrop of a protracted period of rural distress, due to consecutive years of drought in 2014 and 2015, followed by a collapse in farm gate prices in 2016 and 2017. India’s agriculture growth rate between 2014-15 and 2017-18 averaged less than 2% a year, leading to near stagnant farm incomes. Since last year, farmer protests began in several states with demands for remunerative prices and debt waivers.
To appease farmers, Jaitley has outlined a number of measures to boost the rural economy, announcing new projects as well as enhanced support for existing schemes. These are good words and the present government has been promising to uplift the sectors ever since it has come to power. Of course, the earlier government too did the same promises time and again but without much result. The question is: How to double farmers’ income by 2022 or in four years? First, the FM has proposed to raise the MSP by 1.5% of input costs for all crops. This facility is already available for rabi crops which account for about half of the total foodgrains production in the country (rabi crops’ share was 137.2 million tonnesor 49.8% in total foodgrains production of 275.7 million tonnes in 2016-17).
There is another cliché in his promise to raise MSP. It is not clear from the Budget documents which measure of cost the government will take while announcing MSPs in future. The question assumes importance because the Commission for Agricultural Costs and Prices, the body that recommends MSPs for various crops, gives three definitions of production costs: A2, A2+FL, and C2. A2 costs cover actual paid-out expenses incurred by farmers – both in cash and in kind – on seeds, fertilisers, pesticides, hired labour, fuel, irrigation, etc. A2+FL include A2 plus an imputed value of unpaid family labour while C2 or comprehensive cost of production includes imputed rent and interest on owned land and capital over and above A2+FL.
Reportedly, if A2 cost is taken for MSP calculation then the current MSPs are already above this threshold in all but three of the 20 major crops: jowar (sorghum), ragi and sunflower. In other words, if it is only about providing 50% returns on actual paid-out costs to farmers, that promise has already been met for most crops. However, if the MSP calculation is made on C2 cost none of these crops are giving 50% return on input costs.
Farmer organisations are demanding MSPs at 50% over C2 or comprehensive cost. The Budget has not defined the formula but if C2 cost is considered while fixing MSPs, farmers will gain handsomely, although the cost of food articles will go up significantly. A preliminary study by a national daily finds that “the Budget’s promise of minimum support price-based deficiency payments, should the government not be able to procure all crops at MSP, could cost around `80,000 crore based on conservative estimates (Financial Express February 8, 2018)” .
How the government will finally calculate the MSP or how much it will benefit the farmers is anybody’s guess but the basic anomaly the Indian farmers’ fate lies more in low productivity of crops than their MSPs. Despite repeated promises by successive government to improve the farmers’ income, the productivity of agriculture produce has remained low; in fact, it has stagnated almost at the same level for the last five years. The yield of foodgrains per hectare has increased by just 25 kg in the last five years, from 2,128 kg per hectare in 2012-13 to 2,153 kg per hectare in 2016-17 (Economic Survey 2017-18).
This would look abysmal when compared with other countries. Leave aside developed countries such as the UK, the USA or Canada each of which had yield rate of cereals over 7,000 kg per hectare (World Bank 2014); countries including Sri Lanka (3,802 kg/hec), Bangladesh (4,618 kg/hec), Brazil (4,640 kg/hec), Indonesia (5,036 kg/hec), and China (5886 kg/hec) have considerably higher yield rate.
Overall, the budgetary allocation for the Agriculture Ministry went up by about 15%, from Rs 50,264 crore in 2017-18 (revised estimates) to Rs 57,600 crore in 2018-19 (budget estimates). Among major schemes, outlays on crop insurance were raised from Rs 10,698 crore (2017-18 RE) to Rs 13,000 crore (2018-19 BE), while those on micro irrigation were raised from Rs 3,000 crore to Rs 4,000 crore.
So much for farmers but for the poor in general and particularly for those in rural areas, Jaitley has unveiled an ambitious health plan. In fact, the centre-piece of Budget 2018-19 was the government’s plan to provide universal healthcare through a ‘National Health Protection scheme’. The scheme would provide a cover of up to Rs 5 lakh per family per year for secondary and tertiary care hospitalisation to 10 crore poor and vulnerable families, or about 50 crore beneficiaries, nearly half of India’s population of 125 crore.
This is a welcome move but the question arises about its implementation since only Rs 2,000 crore was allocated for this scheme in the Budget. Simple arithmetic shows that even at Rs 5,000 reimbursement per year per family would cost the exchequer some Rs 50,000 crore annually.
The third major issue of the Budget was employment generation. And this has to come by expanding economic activities. The investment in rural infrastructure and agriculture would create 321 crore person days, Jaitley has said. But these jobs would be seasonal in nature and cater to unskilled rural workforce. Where are the jobs for millions graduates and technicians who are joining the workforce every year? He has said in his speech that “Creating job opportunities and facilitating generation of employment has been at the core of our policy-making. We have taken a number of steps to boost employment generation in the country.”
But only so much; the Budget has not given any outline as to how and where FM expects new job creations. Once again, he has rested his hopes on higher GDP growth, which has failed in the past. Government’s own statistics shows that employment generation has declined in recent years. In 2015, a year after Modi took charge; some 1.35 lakh new jobs were created in India. It was the lowest in seven years, very much lower than 4.19 lakh new jobs created in 2013 and as many as 11 lakh two years ago, in 2011.
It might be that his efforts to energise the Medium, Small and Micro Enterprises (MSMEs) sector would create some jobs. The Budget has proposed to cut the corporate tax rate to 25% for companies with annual revenue of up to Rs 250 crore. “This will benefit the entire class of micro, small and medium enterprises which accounts for almost 99% of companies filing their tax returns,” he said. There are around 30 million establishments in India’s informal economy, with MSMEs having a 32% share, according to the government.
Beside this tax cut, the FM has also provided Rs 3,794 crore to MSME sector for giving credit support, capital and interest subsidy and innovations. “The MSME sector faces a major problem in terms of getting adequate credit for expansion of business activities”, the Economic Survey had observed earlier. And if Rs 3,794 credit support is not enough to solve the sector’s financial trouble this will indicate a new beginning.
To note that in last year’s Budget, Jaitley had reduced the income tax for small companies with an annual turnover up to Rs 50 crore, which accounts for a substantial part of MSMEs. This is estimated to have benefited more than 6.67 lakh companies. Now this benefit will go to companies which have an annual turnover in excess of Rs 50 crore but up to Rs 250 crore.