Rewind. Budgeting for the future

The task of a Finance Minister is unenviable; he is damned if he does and damned if he doesn’t. Arun Jaitley has to sweep the country off bad practices and neglect of several decades. A focus of this year’s Budget has rightly been on agriculture.

Over half of India’s population is dependent on agriculture for its livelihood, yet the sector gets only 14 per cent of national income. This is clearly iniquitous and must be remedied. Jaitley proposes to double farm income in five years, which is a growth of 14.9 per cent (CAGR). If the GDP itself is slated to grow at around 8 per cent, this is not an ambitious target and will probably end up higher. Income from farm produce is low since the market is not a national one. This is done through the setting up of Agricultural Produce Marketing Committees (APMCs) by all the states. This, in turn, has inhibited the growth of a national market. These APMCs control the pricing and movement of farm products. In the end, traders (and middlemen) get a large chunk of the farmer’s income. Scrapping the APMCs is the task of the states. In order to set up a national market, the Centre is asking the states to amend their APMC laws, and some of them have. Else, it may rely on the concurrent list of the Constitution to pass a law to establish a national market for agricultural produce.

Jaitley has also made use of available technologies in his Budget, which is great! For example, Soil Cards will be given to farmers and biometric Aadhaar cards for directly distributing benefits.

Amongst the various challenges faced by mankind is that of feeding a growing population. From seven billion, the global population is expected to grow to 9.6 billion by 2050. This requires 70 per cent increase in protein requirement. Where will this come from? One answer is fish, bred through aquaculture. Fish are more efficient at producing protein. Readers and the Finance Minister should listen to a Ted talk by Mike Velings on this.

Perhaps the Finance Minister may also look at introducing an income tax on large farmers. There is no justification for exempting all farm income; rich farmers are not even a vote bank. So, if others are exempt up to ₹2.5 lakh of income, farmers could be exempt up to, say, ₹25 lakh.

This is important if the government is truly serious about tackling black money. Agricultural income is usually the laundry to change its colour to white. There is no justification at all for allowing this. The Finance Minister has proposed a scheme to settle tax disputes. This could succeed in clearing a backlog of disputed cases and generating funds for the government. This is a sensible move.

The Finance Minister has stuck to fiscal prudence instead of pump priming the economy by increasing the fiscal deficit. This is good. The Sensex fell over 400 points during presentation of the Budget, in a knee jerk reaction to it, but rose 777 points the next day and continued rising the next two days. Investors should consult their heads, not their knees. Sticking to the fiscal deficit target has led to hopes that the RBI Governor, who was insisting on fiscal prudence, would do his bit by cutting interest rates. A 25-basis-point cut in rate cannot be ruled out. Foreign investors too are likely to return after seeing the performance of the Indian economy.

The India story looks good, even though a lot of work still needs to be done, and will be. The Budget has charted the course for the future.

The writer is India Head, EuroMoney Conferences

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