Sunday, March 02, 2008

Indian Budget'08: When is "sop" Not a "sop"?

Sop (n.): A piece of food soaked or dipped in a liquid; something yielded to placate or soothe; a concession given to mollify or placate, etc.

The highlight of the India's Annual Budget yesterday was the waiver of Rs.60,000crore ($15bn approx) debt to the small and marginal farmers.

Some hailed this as "revolutionary", while others criticised this as a "populist stunt" - a "sop" given with the next year's elections in mind. In either case, both sides agree that this is "whopping" amount.

    [Though this is not the focus of this posting, my own understanding is that this debt relief package will not be able to solve the farmers' debt problems - for two reasons:

  • According to the pre-budget Economic Survey, non-institutional sources (e.g., local moneylender, traders, relatives, etc.) account for more than 40% (or Rs.48,000crores) of farmers' debt, which is taken at exhorbitant interest rates, and

  • The debt relief touches only the symptom, and not the root-cause. Farmers take debt because the production costs have gone up, remuneration for produce has gone down, and state investments in building farm-related infrastructure. Quoting from an earlier post in 2005:

    "...So why are Indian Farmers indebted?

    The decline in agriculture started during 1980's, with the decline of public investment in the sector — in irrigation, marketing infrastructure like warehousing, mandis, etc, and seeds and extension services. From 16.4 per cent in 1979-80, plan outlay in agriculture and allied activities slumped to 4.9 per cent in the Ninth Plan (1997-2002), making farming, always the most privatised, independent business, a totally support-less venture in these liberalised, globalised times (the fact that this coincided with the IMF loan is a different story)

    Meanwhile, the global prices have dropped: from $216/ton in 1995 to $133/ton in 2001 for wheat, $98.2/ton in 1995 to $49.1/ton in 2001 for cotton, $273/ton in 1995 to $178/ton for soyabean, etc.

    The drop in global prices is not because of increased productivity, efficiency and competitiveness of other developed economies, but due to the agricultural subsidies doled out by the rich nations to their agribusiness corporations (e.g., Monsanto, Cargill, Syngenta, etc.).

    For instance, the U.S government pays $193/ton to US Soya farmers; 25000 cotton producers in the U.S are given a subsidy of $4bn annually, etc., leading to a subsidy of $ 230 per acre in the USA. In the process, the Indian peasants are loosing $ 26 billion or Rs.1.2 trillion annually. This is a burden their poverty does not allow them to bear. Hence the epidemic of farmer suicides."


    This debt relief does not address these basic issues...]

But coming back to the issue of how "whopping" is this "sop"?...

One concern often mentioned in the mainstream media (and that includes the metropolitan conversations in blogosphere) is about where will this money come from - and that why should the taxes paid by individuals and corporate be used for bestowing this dubious largesse of Rs.60,000crores...

Here are some benchmarks:

Where did the honest - even if ignorant - taxpayers' money go during last financial year?:

  • Export related subsidies and exemptions (when given to industry, these are called "incentives") accounted for Rs.58,416cr

  • Individual tax-payers saved Rs.38,107cr on income-tax by investing in tax-exempted options under 80C of IT Act (in case, you want to exercise this option, here is an advice on how to save 88% of your income tax in the coming financial year.

  • The India Inc. got tax concessions worth approximately Rs.58,655cr, based on the analysis of over 3.28 lakh tax returns filed by the corporate bodies, representing over 90% of corporate tax returns... "these companies earned Rs 5,56,190 crore as profits before taxes, but declared taxable income of Rs 3,41,606 crore only during the financial year 2006-07.... Taking advantage of various exemptions and rebates, these companies paid taxes at the rate of 20.60%, substantially lower than the statutory tax rate of 33.66%."

  • Excise duty exemptions accounted for a revenue loss - or loss of taxpayer's money - of Rs 87,992cr

    There are various mechanics and modalities for exploiting the "legal leaks in the corporate tax systems" which is how the tax-consultants earn their living... If interested, check How Much Income Tax Did You Pay This Year?

    In any case, the issue is between:

    Rs. 58,416 + 38,107 + 58,655 +87,992 crores vs. Rs. 60,000 crores

    Needless to say, the marginal and small farmer has neither such tax-saving options - and for that matter, a taxable income!!!

  • 4 comments:

    devi said...

    Madhukar,
    Congrats on this timely piece, this is the time of the year when corporate honchos getting fat on subsidies and their minions -living on fat-cat salaries and fringe benefits- go blue in the face, thinking of the massive 'bail out for farmers'.....

    As you rightly pointed out, they are obviously unable to see the dole outs that they themselves get in various forms, however what the poor starving farmer gets will ruin the nation...

    Well the nation has already been ruined by the fact that we do not respect the people who feed us and I wait for the day when the rural farmers will rise as one and refuse to feed any of us urbanites. The day they would rather burn or throw away all the grain rather than sell it to urban India, anyway selling it in the free market is not helping them is it? It is only providing all of us subsidized food......Then maybe we can eat our laptops, blackberrys and ipods or those wonderful cock-and-bull ppts for creating which those obscene salaries are paid ....or just diet to death!

    devi

    rahul said...

    I completely agree with you sir..also the suppossed gift to millions of aspiring engineers that FM has doled out, is not really what it seems.

    more on that on my blog..

    Prometheus_Unbound said...

    Extremely informative post sir. Classic case of misplaced priorities from both the government and in today's 'news sources'.

    But now that the govt. has taken such a major step in recognizing this problem, it seems that political will with time get to the root of the problem and push for de-linking of indirect agri-subsidies in Europe and North America.

    sarkywoman said...

    Hi,
    Yes, the whopping sop isn't that great, compared to the "incentives" being doled out to the Corporate sector.

    But, as you pointed out, this sop isn't really helping the farmers.

    We need to make the production of food grains and other food crops more profitable for the farmers. We need to increase the reach of organized credit. . to the level of poor and marginal farmers.

    Giving the sop makes the poor farmer who struggled to pay back his loan look foolish as now he's found he needn't have bothered.
    What about these people? This way, we are more or less encouraging them to default on their loans.