Promises and piecrusts

Promises and piecrusts


In the chilling way that Communists manage to look at conventional, what they call “bourgeois” morality, Vladimir Illyich Lenin is attributed with likening promises to piecrusts--made to be broken! In Mother Russia, the European part of the Tsarist Empire, and the succeeding USSR, baked dinners were commonplace; and so, Lenin’s meaning was not lost, even on the most prosaic mind.

However, the metaphor turns into the soggy pathos of a suet pudding if the promise is not intended to be broken, as in, say, Finance Minister(FM) P Chidambaram’s 2008 budgetary main plank, namely the waiver of Rs. 60,000 crores worth of bank borrowings by small and medium scale farmers. The waiver, such as it is, will provide only crop loan relief, which is not the main source of rural indebtedness anyway. People borrow for weddings and feasts, home improvements and medical emergencies in the villages, just like in the cities. But still, this proposed waiver will help some 4 crore small and marginal farmers with landholdings below five acres, averaging out to a paltry Rs. 9,000 each. Additionally, it will help 1 crore large farmers. All the farmers have loans which were due to be paid on December 31st, 2007.

But, this populist little waiver is hardly enough to scratch the surface of the hefty rural indebtedness problem. After all, there are some 60 crore people living in rural India. But it is nevertheless hoped that it will carry the UPA, probably on the back of the imaginary winged steed of political momentum, to a sweep of the forthcoming Assembly and General Elections. But, as a classic opportunistic move reminiscent of VP Singh’s Mandal Commission debacle; the waiver has the potential of backfiring because it is far too little in the face of far too much! The aam aadmi does not like to be mocked as the now infamous “India Shining” poll campaign of 2003 will also bear out.

Proposals such as this have a way of stoking appetites that cannot be readily sated, and in the event, history tells us, they can turn into unintended nightmares. And this one may be getting itself off to an early start with the farmers and their mouthpieces starting to grumble already. This, even as the Congress Party and its President begin to highlight the “farmer-friendly” move in the first of a series of political rallies.

But the negative murmurs are growing, partially because the analytic classes are unable to explain how the waiver will be funded, even over the three years indicated by the FM. Or indeed whether it is really just a spin being put on writing-off unrealisable PSU bank farmer debt. Could this be just the Indian government variation on the sub-prime crisis that is exercising so much of the world economy?

Nevertheless, the government does not see why it should not attempt to turn the deed of accounting adjustment into a virtuous vote magnet at the same time. But let us remember that VP Singh also wrote off farm loans amounting to Rs.10,000 per farmer in 1990 without making good the monies and caused the collapse of numerous co-operative banks as a consequence. Likewise, if this government, or its successor, because this waiver will reach out for at least two years after the end of this government, fails to make good the monies to the PSU banks, there could be a palpable weakening of the country’s banking system as a whole.

Also, none of this waiver money will go towards the creation of productive assets for the farmer or any useful mechanism for tomorrow. Its clearly short-term political thrust as a sop to garner the farmer’s vote is borne out by the fact that it was announced separately a couple of days before Budget Day by UPA Chairperson Sonia Gandhi and Prime Minister Manmohan Singh; both photographed wearing their most delighted smiles.

Some commentators have started pointing out that Rs. 60,000 crores is not a whole lot of manna when you apply it to some 60 crore farmers and other rural denizens in varying degrees and types of debt. These farmers and rural folk are in debt not just to PSU banks, whose irascible, often bored, sometimes bitter officialdom, they allegedly have to “induce” and “motivate”; but also to the less red-tape ridden traditional village moneylenders.

The PSU banks, in fact, are accessible mainly to those who have the wherewithal to “induce”. The traditional moneylender on the other hand knows you by name and descent, is a fellow village resident, more personalised, flexible, innovative, responsive and immediate. But both sources of rural finance have a way of exchanging the sorely needed cash for the land deeds as collateral. And this makes it very difficult to arrange for an encore in the face of inclement weather, crop failure, pestilence, unexpected developments, family celebrations or crises and so on.

This waiver, being offered ostensibly in response to a persistent wave of farmer suicides, is nevertheless unproductive, no more than a populist gesture that does nothing to tackle the root causes of the phenomenon of rural indebtedness. It is, however, of a piece with the long-standing and prevalent practice of providing the farmer with free electricity, free water, subsidised fertiliser, controlled, if inadequate, crop off-take pricing, and, of course, zero income taxation.

None of these measures, practiced now over sixty years of independent India, have helped in developing widespread rural prosperity among the medium, small and marginal farmers. In the absence of decent state created infrastructure, including adequate and consistent electricity, water, roads, cold chain, mechanised inputs and other value addition facilities, it is difficult for the Indian farmer to derive the benefits of modernity. But instead of tackling any of the substantive issues of rural India, this waiver proposal does no more than blunder its way behind the Bharat Nirman programme, which is limping along in shambles owing to woeful implementation.

The 2008 Budget also hints, a little unconvincingly, given the strangle-hold that the Left has over this government, in the direction of listing valuable PSU firms on the bourses and even a new wave of disinvestment. There is little hope of this being implemented in the remaining time left to this government and practically no chance of unlocking any value that could contribute to its coffers from this source.

(1,050 words)

By Gautam Mukherjee
Tuesday, 11th March 2008

Also published in The Pioneer on 14th March 2008 on the OP-ED page as "promises and piecrusts" www.dailypioneer.com