IASbaba's Daily Current Affairs Analysis, IASbaba's Daily Current Affairs Jan 2017, National, UPSC

IASbaba’s Daily Current Affairs – 28th January 2017

NATIONAL

TOPIC:

General Studies 2

Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes
Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

General Studies 3

Issues related to direct and indirect farm subsidies and minimum support prices

Farmers’ deaths: Why and What next?

Tamil Nadu has been troubled by a severely deficit monsoon which triggered the worst drought in 140 years and the farmer suicides news are now resurfacing in farming heartlands of the state.
Over 100 farmers, mostly in Cauvery delta have reportedly committed suicide during a period of one month and the numbers are rising.
Various farmers’ associations have expressed their concerns before the State government and have demanded immediate relief measures to put a break on farmer suicides.
The CM of Tamil Nadu declared entire state drought-hit after an official report was submitted which mentioned extent of drought and farm deaths. Measures worth Rs. 160 crore and Rs. 350 crores to alleviate the water crisis in urban and rural local bodies respectively were also announced.
Fund allocation to meet the fodder needs of cattle, rescheduling of farm loans, cancellation of land tax and compensation for lost crop to drought-affected farmers has also been initiated.
Promises have also been made to provide employment to the rural population at an outlay of Rs. 3,400 crore by engaging them in desilting of canals and tanks and extending employment under the MGNREGS by 50 days.
These measures look promising and beneficial to distressed farmers but the underlying rootcause of the farm suicides needs to be addressed. Makeshift solutions are not the panacea to prevent farm suicides in future.

Who is the killer?

Farmer suicides is not a new phenomenon. The National Crime Records Bureau (NCRB) report of 2015 shows that the number of farmers committing suicide rose more than 41% in 2015 over 2014.

Such a statistic is puzzling and shocking despite innumerable State and Central interventions.

Drought?

It has been constantly debated if drought is the only factor driving farmers to commit suicide?
If that had been the case, 1972, 1982 and 1987 were worst drought years, yet no suicides were reported.
Droughts lead to crop losses which are generally compensated by the government in the concerned year. Hence, drought doesn’t literally propel farm suicides.

Debt?

The NCRB report underlines that indebtedness is the single largest underlying cause behind farmers’ suicide.
Even in 2007, the Radhakrishna Committee on Agricultural Indebtedness appointed by the ministry of finance had underlined that farm indebtedness is the main cause for such an extreme form of distress.
Hence, it is a matter of concern that policy makers have not taken this area of concern on a serious note even after 10 years since the committee submitted its recommendations
The belief in policy circles that a loan waiver can solve farm suicides is largely misinformed and misses a concrete base.
It is because that had one-time relief package been a bailout for debt-ridden farmers, then the massive RS. 71,680 crore Agriculture Debt Waiver and Debt Relief Scheme announced in May 2008 should have produced the desired results by now.
However, government data ironically indicates increase in farm suicides after loan waiver!

Non availability of credit?

It has been reported that non-availability of credit has been causing distress among farmers. For this, a doubling of the agriculture credit scheme was introduced during 2004-05 to increase the flow of credit to farmers.
However, the Rangarajan Committee on Financial Inclusion (2008) noted that about 66% of marginal farmers still resorted to informal sources of credit.
Even the report of Task Force on Credit-Related Issues of Farmers (2009) categorically stated that the dominance of moneylenders has continued even after the introduction of doubling of farm credit policy.

These findings suggest that there is something beyond droughts, debt and credit non-availability which is causing farm suicides.

The real culprit

The rapid pace of increase in cost of cultivation of various crops has been a major problem for farmers in the last two decades.
The Commission for Agriculture Costs and Prices (CACP) data on cost of cultivation of different crops shows that most of the foodgrain and non-foodgrain crops in the major growing regions of the country have incurred losses from early 1990s onwards.
The reason is that crop losses that prevailed during the pre-nineties gathered momentum during the post-nineties.
CACP tells that in nineties, the gross cost required for crops cultivation was almost similar to value of output (VOP) in almost all the major foodgrain and non-foodgrain crops across major growing states.
This resulted in dwindling of profit margins during the period with no or very little profit for the cultivators. The farmers suicides came to fore only in the late 1990s with the effect of cost escalation showing its fangs.
Maharashtra has reported maximum number of suicides which is evident from the following
- Gross cost at current prices escalated massively from Rs. 3,267/ha in 1989-90 to Rs. 61,907/ha in 2011-12.
- The Profits fluctuated sharply from Rs. 5,585/ha in 1994-95 to (-)Rs. 654/ha in 2011-12.
- The sugarcane prices have been rising at an alarming rate and ironically, the sugarcane farmers of Maharashtra have not reaped any appreciable profits in relation to its gross cost.
Though there has been increase in all major input costs, there has been abnormal increase in wage cost in recent years. The reason lies with implementation of MGNREGS which escalated overall cost of cultivation of the crop.
Andhra Pradesh’s paddy crop has not proved to be beneficial to its farmers
- The profits varied only between Rs. 273/ha to Rs. 170/ha during 1970-71 and 2011-12.
- Paddy cultivation suffered losses in 19 out of 36 years, compelling AP to declare a ‘crop holiday’ during kharif 2011.

IASbaba’s views- Targeting the cause

It has been understood that income from crop cultivation is neither adequate nor consistent. Hence it is futile to announce one-time relief measures to heal the wound of farmers and also inflict fiscal burden on government.

The policymakers need to focus on the cause (crop losses and increased costs) and not the effect (suicide or indebtedness) for a proper diagnosis.

For this, the skyrocketed prices of farm inputs need to be regulated so that farmers also get a decent profit margin. The cost of cultivation have to be brought down without affecting the productivity of crops. The delivery of agricultural credit needs to be improved and efforts should be undertaken to restructure MGNREGS by linking it with the farming work to reduce the cost of cultivation especially during peak seasons.

As recommended by National Commission on Farmers (2006) and the Working Group on Agriculture Production (2010), MSP for different crops should be at least 50% more than the actual cost of cultivation.

These measures will not arise the need for one-time loan waivers and create a sustainable environment for the farmers’ livelihood.

Connecting the dots:

Recently, SC declared farmers’ deaths as a human rights violation issue. Why? What are the causes that cause farm suicides? Examine
Is there a need for national policy for protecting the farmers, who are the bread winners of the country? What can be its significant provisions in your opinion?

ECONOMY

TOPIC: General Studies 3

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Government Budgeting.

Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

Budget 2017 Recommendations – Reforms in Indian Economy

Introduction

The 2017 Finance Budget is expected to be a very crucial one for the economy of the country. With the country still under the impact of the demonetisation drive and the economy experiencing a resultant slowdown, all eyes are set on the budget.

A lot of structural and institutional reforms are on the cards which include the implementation of the landmark Goods and Service Tax (GST) and other reforms such as the bankruptcy code. The budget needs to include measures which address all issues which have been plaguing the economy and ensure implementation of above reforms in a smooth manner to send a positive signal across.

Direct Tax

Following the demonetisation drive and to ensure that the economy gets going as quickly as possible certain direct tax reforms are highly essential.

Tax benefits need to be given to promote spending and also mobilise savings especially those belonging to the youth and the households as well.
Tax deduction limits under Section 80C of the Income-tax Act, 1961 can also be raised. Due to this a lot of money can be diverted towards securities market.
Various deposit schemes have a lock-in provision of five years. The budget can reduce this period which will lead to more bank deposits and thus improved resource availability with the banks.
The corporate sector can also be encouraged to expand by way of cut in corporate tax rates. This will boost business confidence and increase demand.

Encouraging Financial Savings

In India, savings in pension instruments form approximately 1% of the GDP only. To improve this ratio it is important to introduce a uniform tax treatment for all pension instruments and ensure a quantitative post tax return from these instruments.
The budget can also re-introduce instruments like the inflation indexed bonds. These bonds will provide higher risk with relatively lower return.
By way of changes in tax slabs and reduction of tax rates the government can boost consumption demand. This will increase savings for the people and also address the liquidity squeeze due to demonetisation.

Reduction in Cost of Funds

For transforming the economy, it is essential to reduce the interest rates in the economy. Implementation of GST will go a long way in lowering economic costs in the medium term.
Guidelines regarding financial instruments such as ECBs should be relaxed to reduce their cost of operations as well.
Banks should also selectively regulate their lending rates for critical sectors such as housing and renewable energy.

Medium and Small Scale Industries

The Medium and Small Scale Enterprises (MSME) sector has been facing a tough time in the less cash environment post demonetisation. There is a need for reforms for this sector as well.
SIDBI could open a refinance window along with RBI to provide more and easier access to finance.
A special centralised database could be created for the MSMEs. This could constitute details of information of bank accounts all MSMEs. Linking this with the Aadhar data will further enhance transparency.
Use of technology and automating assessment of financial data will reduce decision making time and also the interest cost for MSMEs.

Public Investment

Public investment for capital expenditure is an evergreen need of the economy. It will give a push to the creation of productive assets in the economy.
The Government will also have to introduce measures to promote crowd sourced private investments. This will give an immense boost to infrastructural growth and development and overall economic growth.
The budget should also have provisions to promote a vibrant corporate bond market for infrastructure growth. The government could create a new trading platform for corporate bonds.

Contemporary Innovations

With the government pushing the country towards digital economy and cashless transactions with its flagship programme of Digital India, a lot of innovations are required in the budget.

Budget provisions need to work towards giving the financial technology sector a boost.
An enabling regulatory and licensing framework for safeguarding interests of various stakeholders and increasing efficiency is important to encourage more players in this sector.
Innovations which promote secure and safe transactions will be essential for assisting India truly leverage digital payments.
Budget provisions should boost National Optical Fibre Network (NOFN) to create digital infrastructure for a cashless economy.

Other Reforms

Other miscellaneous but highly crucial reforms include:

Banking Sector: There is a need for greater infusion of capital in this budget.
Disinvestment: The government needs to make certain smart disinvestment moves in this budget. This will increase capital availability and help in infrastructural development.
GST Implementation: It is highly important for the budget to end any further delay in the implementation of GST. This will increase investor confidence and reduce uncertainty.
Unorganised Sector: Incentives need to be given to the unorganised sector to shift to the organised and formal sector.

Conclusion

All the above reforms suggested above are of equal relevance for the economy. It is therefore imperative for the government to give due attention to all these area. However, it is important for the government to ensure that measure for the above reforms do not have a very major impact on the fiscal deficit of the country. For this purpose the budget can even propose a target of fiscal deficit. The ongoing financial year has laid the foundation for a very strong economy. It is now upon the Budget 2017 to build upon this foundation by ensuring implementation of reforms efficiently and effectively.

Connecting the dots

With the recent demonetisation drive and the way Indian economy is shaping up, it is on the threshold of emerging as one of the strongest economies. Suggest certain measures and explain how those measures could help India achieve the above.