New Delhi: Rajiv Gandhi, former prime minister of India, had once estimated that less than 15 paise out of every rupee meant for the poor actually reached them because of leakages in the delivery system. Twenty years later, finance minister Pranab Mukherjee announced initiatives that would remove the intermediaries in the supply chain and deliver subsidies directly to the intended beneficiaries.
In the biggest indication of disintermediation, the Congress-led United Progressive Alliance (UPA) government said in its Budget for 2009-10 that it aims to move to a system of direct transfer of fertilizer subsidy to farmers and introduce a nutrient-based subsidy regime.
Highlighting the need for food security, Mukherjee said the declining response of agricultural productivity to increased fertilizer use was a matter of concern. This move will ensure balanced application of fertilizers through the nutrient-based subsidy regime instead of the current product pricing regime, he said in his Budget speech.
“The fertilizer subsidy is a very welcome move. Today the fertilizer subsidy incentivizes large farmers and people who use more fertilizers because the subsidy is given to manufacturers. Direct transfer to small and medium farmers is a much better idea,” said Biraj Patnaik, principal adviser to the Supreme Court commissioners on the right to food.
Farmer-friendly: A highlight of the Budget was the debt relief in the interest subvention scheme for farmers. Under the scheme, farmers will now be provided additional subvention of 1% to be paid from this year. Atlaf Qadri / AP
The commissioners are authorized to monitor the implementation of the apex court’s orders on issues related to the right to food.
Mukherjee’s Budget further underlined the government’s move towards disintermediation with huge thrusts in key social sector programmes such as National Rural Employment Guarantee Scheme (NREGS), Food Security Act, National Rural Livelihood Mission, women’s self help groups (SHGs) and the education loan subsidy scheme, focusing largely on rural India.
“It is a small step in the right direction. You had 15 years of neglect of the rural economy. The reason why the government is so serious now is because they can sense the rural distress with the farmer suicides and Naxalism,” said Patnaik.
NREGS, the UPA’s flagship scheme that guarantees 100 days of wage employment to one member of every household,alone saw an increase in budgetary allocation by 144% to Rs39,100 crore to increase productivity of assets and resources under the programme.
“Very broadly, social sector schemes like the NREGS are basically meant to give stimulus to the economy. It has directly transferred money to people, especially those in the rural areas, who have capacity to consume,” said Dharma Kriti Joshi, director and principal economist at rating firm Crisil Ltd, the Indian arm of Standard and Poor’s.
The Budget has also announced entitlement of 25kg of rice or wheat every month at Rs3 per kg to poor families in rural and urban areas.
Another highlight of the Budget is the debt relief in the interest subvention scheme for farmers. Under the scheme, farmers will now be provided additional subvention of 1% to be paid from this year, as an incentive to those who repay short-term crop loans on time.
“There is high growth in agricultural credit and to make sure it gets absorbed in the rural economy, this Budget has given 1% more to those farmers who repay their loans on schedule. Banks end up spending a lot on the recovery of loans, so, with this, the cost of recovery will also come down,” said A.K. Bandyopadhyay, chief general manager, economic analysis and research, National Bank for Agriculture and Rural Development.
Extending the reach of its programme for rural women under the women’s SHG scheme, the finance minister said at least 50% of all rural women in India will be enrolled as members of SHGs over the next five years.
Poor households that have taken loans of up to Rs1 lakh and students applying for higher education loans will also be given interest subsidies.
“This time, the Budget has moved towards inclusiveness in keeping with the spirit of the 11th Plan,” added Bandyopadhyay. However, while the disintermediation was viewed as beneficial in the short and medium term, questions were raised over its sustainability and delivery in the long term.
“I don’t think disintermediation is a good strategy in (the) long term. The economy should be able to generate jobs on its own and government should just introduce measures for growth of the economy,” said Joshi.
The Economic Survey 2009 showed that leakages in the welfare programmes have prevented the government’s schemes from fully reaching the needy.
“NREGA is a very good programme for inclusiveness, but it’s main problem is delivery. There is no clarity on what kind of jobs will be created and the programme is being abused as well. So the delivery is still lacking,” said Satya Poddar, tax partner for policy and advisory group, Ernst and Young.