The Hindu Business Line : Is Rajnath Singh tilting at windmills?

In cutting the farm credit rate and the Rs 600-crore package for sugarcane farmers, the Government has a larger intention than merely a concern for the agriculture sector, says Sharad Joshi, looking at two packages and their implications.

"Rs 250-crore seed scheme to be launched soon": Agriculture Minister, Mr Rajnath Singh, July 16.

"Farm credit rate cut to 9 per cent": Finance Minister, Mr Jaswant Singh, July 16.

"The cut will apply to cooperative loans as well": Mr Rajnath Singh, July 16.

"Rs 600-crore package for sugarcane growers": Prime Minister in consultation with Agricultural and Finance Ministers, July 17.

THE Lok Sabha elections must be approaching fast. Otherwise, the farmers would not receive this much attention in less than 48 hours. But, then, the farmers have witnessed such drama in the past and look askance at this kind of attention. They have more reason to be suspicious this time because if the top leadership of the ruling NDA is talking "Ayodhya Temple", the second rank seems charged with distributing `handouts' to the farmers.

Unfortunately, for the ruling alliance, the farm package has so many holes. The authors are perhaps not tuned to the ground realities. Let us leave the seeds to the birds and examine the credit rate ceiling and sugarcane price.

The farm credit rate ceiling of 9 per cent. It is not everyday that theFinance Minister addresses a press conference with theMinister of Agriculture. Mr Rajnath Singh must have substantial clout in the Cabinet to have managed that. Pity that the announcement, though well packaged, had so little substance.

If fixing a ceiling on the interest rate of farm credit and sticking to the quota of 18 per cent for priority loans are not a return to the pre-1994 era of administered interest rates, one wonders what it is? In the reforms era, Mr Jaswant Singh has brought in contrived rates of interest for senior citizens and housing sector. His July 17 declaration is only a confirmation that in the banking sector, the government backtracking to the old days of controlled interest rate regime. This will certainly lend itself to creating a black-market in credit. The loans may get diverted to non-farm purposes.

At present just about 2 per cent of the farm credit is extended at a single digitrate of interest. All that the Finance minister proposes is to eliminate one link in the chain of intermediaries. It is unlikely that mere elimination of the apex banks will bring down the cost of credit to below 10 per cent.

The network to which the scheme is applied meets only 45 per cent of the over Rs 40,000 crore extended as crop loans. The crop loans generally cover only 80 per cent of the cultivation cost. Thus, even on paper the advantage can conceivably reach the farmers to the extent of only about 35 per cent. In spite of Mr Rajnath Singh's hopes, it is unlikely that the cooperative network will accept to implement the scheme. It is not specified if the RBI is being directed to extend its line of credit to Nabard. Unless Nabard gets a finance of at least Rs 2,500 crore over and above the present Rs 6,500 crore, the scheme will not even take off.

The talk of using the postal network was only at conceptual level. No detailed scheme was presented. The reasons are obvious. Bringing in the post-office will mean additional cost to the exchequer or at least an additional line of credit. The Finance Minister is out to show generosity to farmers only if it does not pinch the exchequer.

There is a much bigger substantial fault, which goes to the core of the scheme. An administered rate of interest of 9 per cent in the housing sector makes sense because the returns there are in double digit. That is not the case in agriculture. The Finance Minister thinks that he has done a magnanimous act by cutting the farm credit interest rate to 9 per cent. The Minister of Agriculture should have told him that the Commission for Agricultural Costs and Prices (CACP) computes into its calculations a rate of interest that ranges between2 per cent and 3 per cent only (See Table). If the farmers get a price that covers an interest cost only 2-3 per cent, reduction of the rate to 9 per cent is an exercise in futility.

The cane package

More controversial will be the declaration of the Rs 600-crore package for sugarcane growers. It reeks of parochial politics. The idea is that the Centre should divert money from the Sugar Development Fund to the benefit of cane producers in Uttar Pradesh, Uttaranchal, Haryana and Punjab where the State government declare State Advised Prices (SAPs) substantially higher than the Statutory Minimum Prices (SMP) for sugarcane.

The cooperative and the government sugar mills in these States have agreed to pay the higher SAP; they have no choice in the matter. The private mills have made it clear that they can, at most, manage to pay the SMP. The Prime Minister, in consultation with the Finance and Agriculture Ministers, now proposes to use Rs 600 crore from the Sugar Development Fund to meet the difference between the SMP and the SAP. The Sugar Development Fund draws its resources from a cess on sugar collected from all the States. To use it for the benefit of only four States will certainly provoke sharp reactions from Gujarat, Maharashtra, Karnataka and Andhra Pradesh. These are the States, which are normally penalised for higher productivity through fixation of lower prices for levy sugar!

The Prime Minister's decision is tantamount to the replacement of the SMP fixed by the Centre by the SAP fixed by individual States. The four Southern cane-producing States would now have a lower assured price for the cane in addition to a lower levy price for the sugar. Gujarat, Karnataka and Andhra Pradesh do not have the system of State Advised Prices. The cane producers there would be penalised because the governments in their States have scrupulously followed the spirit behind the fixation of the SMP and desisted from announcing a parallel SAP.

The case of Maharashtra is even more bizarre. The State Government is dominated by cooperative sugar barons. The Government thought that it was doing good to the cooperative sugar factories by permitting them to pay the farmers a price lower than the SMP. Maharashtra, in fact, has a negative SAP in the sense that it is lesser than the SMP. In the just-ended season, the SMP for good factories in southern Maharashtra works out to around Rs 1,000 per tonne, while the SAP is as low as Rs 560 per tonne.

But for the fact that the Maharashtra Government, blackmailed by the sugar cooperative barons, fixed a SAP lower than the SMP, the cane growers in Maharashtra would have got at least the SMP under the Prime Minister's Rs 600-crore package.

The cooperative movement in Maharashtra stands completely exposed. The government of Maharashtra will have to fork out much more than Rs 170 crore that it is offering the financial institutions to stave of seizure of government property.

How is the Rs 600 crore going to be used? According to the explanation given by the officials, the amount will not be paid in cash to the farmers but will be used for improving the productivity and the quality of sugarcane and sugar. This would be the first case where a cash subsidy is being converted into a `Green Box' subsidy. This is something the rich countries have been doing since Marrakech. If India does it nobody can object because the amount comes not from the budgetary source but from the Sugar Development Fund, which is contributed by the cane producers themselves.

Mr Rajnath Singh certainly thought he was strengthening BJP's electoral muscle. But was he?

(The author is Founder, Shetkari Sanghatana, and can be contacted at sharad@mah.nic.in)

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