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Budget to carry special 'monsoon' package

By Sapna Dogra Singh in New Delhi
Last updated on: June 26, 2009 09:41 IST
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The government's forecast of below-normal monsoon this year is likely to influence the finance ministry's thinking on the broad policy thrust of the Union Budget for 2009-10.

A special policy package for the rural economy to help it withstand the effects of delayed and deficient rains is likely to be included in Finance Minister Pranab Mukherjee's Budget speech on July 6. Details of the package are being finalised, according to government officials providing inputs to the Budget team.

This is the first time in recent years that the Union Budget is being prepared in the backdrop of deficient monsoon rains. A research report by Citigroup India has pointed out that a bad monsoon could take away 1 percentage point from India's gross domestic product growth in the current financial year. Agriculture has a weight of 17 per cent in the country's total GDP.

Experts agree with the assessment that the Budget next month would respond to the predictions of deficient monsoon rains with a policy package. According to them, rain-fed areas, which are likely to be affected by a 'below normal' monsoon, could see increase in allocation in terms of higher spending through the public distribution system and the National Rural Employment Guarantee Scheme.

The National Rainfed Area Authority, which was set up in 2006, may be made more active through higher allocation of funds. At present, this authority is not fully functioning because of lack of manpower and funding.

"There have been demands to have differential treatment for rain-fed areas as policies for these areas get sidelined by general agriculture policies; crops like millet, bajra and jowar don't get focus," said Sukhpal Singh, professor with the Centre for Management in Agriculture, Indian Institute of Management, Ahmedabad.

Experts said the government was likely to focus on managing the demand side by ensuring that food is available through the PDS. This will push up government's food subsidy bill as the issue price to the PDS is substantially lower than the procurement price paid by state-run agencies like the Food Corporation of India.

"The Budget could also look at supporting farmers directly through input credit or a farm loan waiver. But no quick measure can be taken now to increase the foodgrain production," said Subrat Das, coordinator of the Centre for Budget and Government Accountability, a research institution focussed on government budgets.

"The farmer is looking at the sky for rains more than budget-related measures. Some relief measures for farmers are likely, but I do not know what those will be. The budget cannot create rains," said M Govinda Rao, director, National Institute of Public Finance and Policy.

Experts vouch for starting long terms measures so that India is able to cope better with less-than-normal rainfall. "There is need to promote techniques like 'systemic rice intensification,' which uses 40 per cent less water. Budgetary provisions can give directions towards adoption of these techniques," said former agriculture secretary Bhaskar Barua.

However, availability of food grains is unlikely to be an issue because of sufficient stocks.

India, the world's second-biggest producer of wheat, bought a record quantity of grain from farmers this season to bolster its stocks.  As on June 5, the central pool had wheat stocks of 24 million tonnes and rice stocks of 30 million tonnes, up 18 per cent over the last year, making up a total of 54 million tonnes.

This is almost double the Food Corporation India capacity of 24.18 million tonnes (owned and hired) in over 1,400 godowns all over India.

Though India Meteorological Department has downgraded its monsoon forecast to 'below normal,' government officials are saying it is too early to say it would affect kharif (summer) crops.

"We believe that it (monsoon) can't affect the crop. The main kharif season starts in July (the main crop is paddy) and by June end or early July, there would be rains," said a senior official at the Indian Council of Agricultural Research, a part of the ministry of agriculture.

He added that contingency plans were being readied to deal with the situation. "The cost of this contingency plan and time taken to execute these plans would be crucial," said the ICAR official, without giving details on what components this plan would have.

Also, not all states will be affected in the same way. While southern states and peninsular areas would experience a shortfall in rain, northern states like Punjab, Uttar Pradesh, Haryana, West Bengal would have normal rainfall, said an official with the International Crops Research Institute for the Semi-Arid Tropics, a not-for-profit organisation involved in agricultural research.

Farmer leaders and policy experts suggest that the government should take this opportunity to initiate long term sustainable measures for the farm sector, so that the Indian farming sector is able to withstand contingencies.

Farmer leaders too have called for long-term interventions by correcting systemic problems, but do not expect any big-ticket measures in the budget.

"Food security of the nation at the moment is monsoon neutral. This is because of better use of technology like high-yield seeds and fertilisers. Hence, I do not expect the government to support the agriculture in a big way in the coming budget," said Maharashtra-based farmer leader Sharad Joshi.

According to P Chengal Reddy, secretary general of Consortium of Indian Farmers Associations, short-term measures like making irrigation equipment tax-free or writing off loans are not efficient. "Instead there should be a system that ensures that even the most marginal farmer has access to loans," he said.

(Additional reporting: Rituparna Bhuyan and Niharika Chandola)

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Sapna Dogra Singh in New Delhi
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