New Delhi: Finance minister P. Chidambaram has kicked off the government’s controversial farm loan programme announced in Budget 2008-09 by making a provision for it— in the government’s finances for 2007-08.
The move, which has received a predictably mixed response from politicians, although economists have welcomed it, comes just five days ahead of a crucial meeting between the ruling United Progressive Alliance and its key ally, the Left Front, to discuss India’s civilian nuclear deal with the US.
Analysts say that the Left Front, which has threatened to withdraw support if the government goes ahead with the deal, may not be able to do so as easily after the government has backed up its announcement of a Rs60,000 crore farm loan waiver with actual money for one-sixth of this amount.
Chidambaram’s move marks the first attempt by the government to provide for the farm loan waiver; soon after the Union Budget, which announced the waiver without making any provision for it, he was criticized by several economists and politicians for not providing any money for the populist programme.
On Wednesday, Chidambaram moved a supplementary demand for grants in Parliament seeking Rs10,000 crore in 2007-08 to create the Farmer’s Debt Relief Fund. The demand for grants is the expenditure statement of the government and requires parliamentary approval. When the actual amounts exceed the budgeted ones, the government has to move a supplementary demand for grants.
The demand for grants, the third and last supplementary demand for this financial year, sought approval for gross additional spending of Rs1.4 trillion. The new demands will involve a net cash outgo of Rs43,060 crore, including that for the fund; the difference will be made up by lower expenditure by some ministries, Chidambaram said.
Chidambaram had said in his Budget speech that the entire debt waiver process would be completed by June. The current supplementary, as it is called, will take care of the government’s funds till the Budget is passed in late May.
“This is probably the right way to do it, through a fund, since there is already a slack on the fiscal front,” said Pronab Sen, chief statistician of India. “This will help reduce the pressure on the fisc next year that will also see the pay commission awards.”
Although the government has claimed a fiscal deficit or new borrowing of 3.1% of the gross domestic product in 2007-08 and an even lower 2.5% in 2008-09, many economists consider this to be an understatement. This is because many expenditure items, such as petroleum, fertilizer and food subsidies given via bonds issued by public sector companies, have not been included in the Budget. The addition for the debt waiver will only accentuate this problem.
M. Govinda Rao, director, National Institute of Public Finance and Policy, expects such off-budget liabilities and other provisioning to add at least 1.9% of GDP to the fiscal deficit in 2008-09, bringing it to 4.4%, which is far higher than the legally mandated target of 3%.
The Sixth Pay Commission is expected to announce higher pay scales for government employees in May, involving a provisioning of at least Rs25,000 crore in the budget, said Rao.
Bimal Jalan, Rajya Sabha member and a former RBI governor, said “although this is correct parliamentary procedure and the amount if not very high, one can certainly ask why this fund was not created in the Budget itself.”
Calling it “a most unusual move,” Yashwant Sinha, former finance minister and a Rajya Sabha member of the BJP, said “the finance minister chose to finance the debt waiver through the back door...”
The Budget also provided Rs4,000 crore for the fertilizer ministry and Rs9,297 crore for petroleum ministry. Most of the money allotted to the fertilizer ministry, Rs3,800 crore, is towards the subsidy and most of the money for the petroleum ministry, Rs9,076 crore, will go towards the issue of oil bonds.
A finance ministry official, who did not wish to be identified, declined to explain why the government wanted money to be allocated for the farm loan waiver in a retrospective manner. “The sum of Rs60,000 crore promised would have contributions from many sources. This is just a start. The question of ethics does not arise,” said the official.
Udit Misra contributed to this story.