The Indian budget highlight: a $15 billion charity give-away

Posted by: Manjeet Krpalani on February 29, 2008

Indian finance minister Mr. Chidambaram today presented his last budget to the Indian parliament. Next year, 2009, is an election year in India, and the ruling Congress coalition is desperate to be re-elected. So the budget is aimed at the masses, the big vote bank in India.

A few highlights are the 20% increased spending on both health and education, lower taxes for small cars, lower taxes on bulk drugs. But the centrepiece of the budget was a $15 billion waiver of loans to India’s 40 million small farmers. While the entire Parliament roared in approval, corporate India groaned, and the stock market sank.

We’ve seen this movie before.

It is very good that farmer debt has been forgiven. While most of India has benefitted from economic reform, the agricultural sector has seen very little change. The burden of that is carried by the small farmer, who owns a hectare or two of land, and ekes out a living in primitive conditions. His life has remained largely unimproved for the last five decades, and now, as the rest of India moves on, he is further removed from his countrymen. A poor income means taking more loans, either from the state or from ururious money lenders, for everything from fertilizer to building a habitat or family marriages. Crop failures are devastating, and usually result in farmer suicides.

So forgiving the farmers’ debt is necessary, an expense India should carry.

But the same old questions remain:

1. Who will pay for the $15 billion loss to the banks and state? Corporate India worries it will, though increased post-budget taxes, have to bear that burden - even though overall tax collections are up 30%.

2. Some debt is owed to the state - but there's a lot of informal debt, owed to money lenders who charge interest of 30% or more. Who will forgive that? These are people who live in the community - they are entitled to their repayment, but they are also feudal and extractive especially to the poor.

3. It's all very well to forgive debt - but that's like giving someone fish to eat, without teaching them how to fish. Where's the real reform? What's desperately needed is reform in the agri sector - land reform, corporatization of land, informal education for farmers, more agricultural colleges, modern techniques, research, connectivity, modern markets, ending price distortions, unfettered movement of food products from one state to another, a modern cold chain which contains waste...the list is endless.

4. Throwing money at the sector is not a solution. It never was. Implementation is the key in India - and it's the country's main problem. There is no shortage of money in the country, and there is more being thrown at poverty alleviation here than is invested in other sectors. Indeed, the state does not 'invest' in the agri sector; politicians cynically view farmers as a vote bank, and so they stay. So where are the implentation plans? Implementing the hundreds of farmer schemes, and making sure the funds actually reach the farmers is clearly too tough a task for the state. State agencies like the Food Corporation of India, through which large amounts of the country's food is funnelled, should be made accountable, and so should the agencies and local administrations which are responsible for distributing the various state schemes.

Instead, there are still massive leakages in the system, massive corruption and therefore massive sorrow.

More than 15 years ago, Rajiv Gandhi, former Indian prime minister, calculated that out of every rupee the government put out in schemes, just 15 paisa, or 15%, actually reached the intended recipient of the scheme.

Last month, Gandhi's son, Rahul Gandhi who is now secretary of the Congress Party, calculated that just 5 paisa, or 5%, reached the recipient of government largesse.

Yet this same Congress Party announces a budget where they give away money, without making anyone accountable, or focusing on the successful implementation of their poverty programmes.

As Indian voters have repeatedly shown, they are not fools. The previous Bharatiya Janata Party administration was booted out of office in 2004 for over-confidence in India's forward march which had left many behind. The Congress Party it seems, is over-confident about its hold over the poor masses of India and its ability to keep them stuck in their place. Unfortunately, the party has, with this budget, lost its last chance to show their countrymen true love and compassion. Because by now, everyone knows that charity doesn't get politicians elected; actual performance does.

Reader Comments


February 29, 2008 2:04 PM

Oh!!! It's who that pays for Muslim's Haj visit....who that pays for their Madrassa (does it make sense to learn something that provokes terror)'s who that pays for Sonia family luxury including a cambodian's who that pays for all politician's luxury life..rather spending money to educate this poor farmer, you are turning him to a begger...than rather than improving infrastructure that helps this porr want your money spend on preaching some religion....rather telling muslim youth to learn science, you tell him he is more poor and hence learn more religion...religion only feeds politicians and Mullahs not a person who want to be honest and want to work.


February 29, 2008 9:34 PM

Funny, the article does not mention the true vote bank giveaway, the $10 Billion allocated to Muslims of India to secure their vote by the Congress. Farmers are NOT a vote bank as they belong all religions.

I think the author should not indulge in such obfuscation. This just impacts BW credibility besides insulting the readers intelligence.

Pawan Aggarwal

March 1, 2008 2:37 AM

I would like to express my anger and dissatisfaction towards corrupt Indian politics and this government and the finance minister. who is he to waive the farmers loan which was given to them from the money collected from the taxpayer-the middleclass, which will remain in middleclass because they are forced to pay the tax in this country more than the the higher and wealthier class. They are taking so much tax from the middle class and now they have waived the loans of farmers. Who will make the infrastructure in the cities, if they don't have the money now. I will try my best to oust this government in the next general elections.


March 3, 2008 12:19 AM

Unfortunate. Congress is familiar with these kinds of divide and rule politics. What is good about Rahul Gandhi and what are his qualifications? I hope if they rule for another 5 more years it will be a disaster for countries internal security, then it will be like another Pakistan (Lots of internal issues).

Pichai Bala

March 3, 2008 2:30 AM

The 1 Billion to Minorities and 15 Billion Rupees to the farmers is pale in comparison to the USD250 million giveaway to the palestinians for building a speciality hospital in palestine from one of the poor developing countries India. Personally I would like to have such a speciality hospital in my town in India to benefit our poor and unaffordable. Even the oil rich middle east has not thrown such money to their palestenian buddies. Congress and especially our finance minister is stupid to the core. Also we have to look at the benefits enjoyed by our poor friendly Members of Parliament.

Bhishma Varadarajan

March 3, 2008 7:53 PM

Unlike the impression that author gives and unkind cimments to Fin min by your readers- comments,I'd say thatthis is a pragmatic Budget keeping in mind the status or time of economy(ofcourse in the end it helps congress but for the fact that ruling party benefits if economy of masses improves anyway
On a broader macro picture the country is slightly slowing down and signs of cooling aready there in Maufacturing..
jobs are not getting created the same pace as last year..intrests are high and so do inflation..RBI Guv cant just slah the benchmark rates..precisely becos inflationis a bad tax on people.
so the best P.C can do is in same lines as Bush doing..reduce taxes,put more money incustormer to either spend or invest...Coonsumption part of GDP is getting catalysed by this policy move..reduce excise ..good for industry..and Write off loans - infact good for banks as they can cleanup messy balance sheet.remember they are not in good shape with these loans either.Dont miscalculate P.C
Anyway - agricultures contribution to GDP is worryingly less.So in short term his policies give a boost.And farmers can spend money- rural eco gets boost in India- which is a big econoy.
Yes I do agree there has to be long term policy framework to have this lending to farmers inplace and somehow reduce the infleunce of informal money lenders who charge high..and more importantly corruction should be reduced, which is a worser tax on common man comapred to inflation..
otherwise its a good budget...a deficit is not bad as such..even if its fiscal..


March 4, 2008 1:27 AM

Indian’s rise is really hindered and shackled by the evil Brahmin, especially the Southern Brahmin. We should strict quota on Brahmin in IIT and IIM and limit their commercial activities. India endured them for too long and now it is the time to put an end to it. Otherwise, it will be hard for India to rise brightly for south Asia.


March 24, 2008 3:01 AM

I believe that the budget was a short sighted attempt to try and buy votes.

India is a success today not because but inspite of the government. I think the government should ask itself what are the roles that it really needs to fulfill, and in any role where it cannot say with certainty that it has been successful (get some independent opinions to judge this)it should withdraw and let the private sector and the market provide solutions.

We need to deregulate, and unshackle our economy (especially our rural economy).

We also need to refrain from narrow caste and religion based politics which in the long run will take us nowhere (on that note, I think the comment by Sanja is incorrect, its more of a bigoted rant than anything else).

Caste based policies have done nothing for the underprivileged but create an atmosphere or dependency and paternalism. The rant against Brahmins completely forgets that in the south of India, most of the wealth was not concentrated in the hands of the brahmins but in the hands of wealthy traders and landowners (Chettiars, Nadars, Devars, Reddys and the likes). Today everyone but the Brahmins are considered BCs (Backward castes, and receive reservation). Brahmins have become convenient scapegoats and the new bogeyman (not to say that historically the Bahmins have been blameless, but their sin was to restrict access to religion and religious learning, not to wealth, employment or land).

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