Farmer loan waiver: Who will bear the brunt?

MONEY MATTERS: The waiver of Rs 60,000 cr has left everyone wondering where the money would come from.

      

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New Delhi: On the day when Finance Minister P Chidambaram unveiled his seventh budget – and his fifth for the UPA government – he left everybody stunned with a Rs 60,000 crores waiver of loans for small and marginal farmers.

This has left open two huge questions – where is the money coming from, and if this year’s Budget is an attempt to get re-elected.

Discussing the issue with Network 18’s Managing Director Raghav Bahl were senior CPI-M leader Sitaram Yechury; Deputy Chairman of the Planning Commission, Dr Montek Singh Ahluwalia, who is also a key architect of the UPA government’s economic policies; and former finance minister and senior Opposition leader Yashwant Sinha.

Chidu may have won over many with his Budget, but the UPA’s chief ally, the CPI-M, is still not giving the ruling Congress party any quarter. Though the UPA government transferred Rs 16,000 crores under the NREGS and waived off Rs 60,000 crores worth of loans – both which the CPI-M had demanded – the party is still critical of its ally.

“I’ll only say they’ve not gone all the way,” said Sitaram Yechury. “That is a pity because they had this opportunity to redeem the pledges they’ve made in the Common Minimum Programme, and I think they’ve had a very favourable situation and they could have gone farther than they’ve gone.”

Addressing concerns that the Rs 60,000 crore loan-waiver could dislocate the gradually improving fiscal situation and the FM might end up breaching his own FRBM targets of three per cent, Yechury said that Chidambaram has insured himself well.

“I think he has got enough margins here, and if you notice, even in this Budget, his revenue of surpluses is to the tune of roughly 18 per cent. But then, his capital expenditure is going to grow only by about 8.8 per cent. He has done enough cushioning for meeting the adjusted targets.”

And that, Yechury added, was the complaint of the CPI-M.

“Concern about deficit in a situation of revenue buoyancy is not good economics,” he stated.

Montek Singh Ahluwalia, too, felt the loan waiver can be handled in a prudent manner.

“First of all, the Budget deficit that’s actually in the papers as they stand at the moment, is only 2.5 per cent of the GDP whereas the FM’s target was much higher, that is, 3 per cent,” he explained.

Ahluwalia also pointed to the revenue buoyancy witnessed in the past two or three years.

“Without raising tax rates, the Finance Minister and the Income Tax department in particular have actually succeeded in generating tremendous buoyancy in revenue,” he observed.

Bond-ing issues

The point was then raised that though the fiscal deficit is said to be 2.5 per cent, thanks to many items – such as oil bonds, FCI bonds, loan waiver bonds, among others – being off the balance sheet, the fiscal deficit amounts to almost seven per cent of the GDP, one of the largest in the world for an economy this size.

Ahluwalia assured that it would not come to that and said that the Budget is actually very conservative on the projected revenue growth. He reiterated his assurance that the FM had enough headroom to accommodate all those items left off the table.

“If you just look at what has happened in the current year – 2007-2008 – the RE estimates of revenue are much above budget estimates, and I would expect next year also, given that the tax reforms, the tax compliance is continuing and given that we expect continued and strong growth in the economy, I think the FM will find that more revenues would come in than has been put in the Budget,” he said.