With Congress party president Sonia Gandhi saying that the government needs to keep in mind the interests of the poor and the farmers, it is almost certain the government will have a substantial rural package in the Budget.
Indeed, a Rs 32,000 crore (Rs 320 billion) loan rescheduling package has already been worked out and has been reported in the press. An increase in the NREGA (National Rural Employment Guarantee Act) is almost a certainty. Other measures will be outlined on February 29.
While reading the Budget, it may be a good idea to go thorough the NCAER's latest all-India survey How India Earns, Spends and Saves since it shows just how misdirected most of these schemes will be.
The survey carried out by Rajesh Shukla, of over 200,000 households in nearly 2,000 villages in 250 districts across 24 states/UTs (the urban sample of nearly 250,000 households was spread over 342 towns), allows for more cross-sectional analysis than most official surveys do.
This newspaper has already criticised the likely loan package (Why farm loan waiver is a bad idea) on the grounds that, as in the past, such a scheme will wreck the agricultural credit system -- after Devi Lal's famous loan write-off in 1990, banks grew wary of crop lending.
The other point, as the NCAER data show, is that loans taken by the poorer sections are almost wholly for consumption purposes and largely from informal sources -- there is no way the government can write this off.
Even when it comes to loans for purchase of machinery, where banks have a much larger share, around half comes from the informal sector.
So, the only loans that can be restructured/waived are largely those taken by large/medium farmers, not those availed of by the so-called aam aadmi or poor. So, the lack of organised finance in rural India is a big issue -- the Budget needs to find ways to augment this, not ways to destroy even the little there is.
Of course it needs to be recognised that, if the vulnerable continue to behave the way they do, few organised financiers can ever lend to them.
The NCAER's data show that vulnerable households (defined as those with annual expenses greater than incomes) earn Rs 40,100 per year on average but spend Rs 65,400 -- 57 per cent of this excess expenditure, however, is due to expenses on weddings, births and other social functions. In other words, there is little the government can do for this group even by way of policies that encourage banks to lend more in rural areas.
Around a third of the excess expenditure of these groups, however, is for meeting education and medical expenses. Clearly, government-run education and medical facilities are so woefully inadequate that even the poorest of the poor need to spend their own money to supplement this.
What the Budget needs to do is to turn over government-owned education/medical facilities to the private sector and make it easier for such initiatives (like Dr Devi Shetty's Narayan Hrudaylaya) to spread in rural areas through health and education vouchers for instance. It's an open question if it will deviate from the old allocate-and-spend routine, and more so in an election year.
Needless to say, any package for rural India that focuses primarily on agriculture is going to have a lot less impact than imagine. Agriculture, as Subir Gokarn and Omkar Goswami have shown earlier, comprises under half the total rural income.
Gokarn estimated this fell from 56 per cent in 1993-94 to 48 per cent in 2000-01. Goswami estimated the 2000-01 share at an even lower 46 per cent, with services (33 per cent) and industry (21 per cent) taking up the rest -- Goswami found that rural India accounted for 36 per cent of organised manufacturing units, 38 per cent of its employees, 43 per cent of output and 41 per cent of net value added!
The NCAER's How India Earns confirms these findings on agriculture's share in rural incomes, and then estimates the sources of income of different types of households in rural areas. So, for instance, in the case of large landowning households (those with more than 10 acres of land), around 78 per cent of the income comes from agriculture ("self-employment in agriculture" is the name of the head).
So any agriculture package, whether it involves raising paddy prices or increasing the amount of money spent on irrigation, if properly executed, will benefit this group quickly enough. In the case of the landless, however, the NCAER survey points out, just 2.5 per cent comes from "self-employment in agriculture" -- probably through renting land.
Nearly 70 per cent of this group's income comes from labour -- both from working on someone else's farm to working in industries and/or rural services.
Even if you assume a 50:50 split between labour's income from agriculture and industry/services, it's an open question if increasing farm incomes, however desirable that may be as an independent policy, automatically results in wages also increasing, especially when there is so much underemployment and unemployment in the country.
Both Mr Chidambaram and Dr Singh are familiar with most of these facts. The question really is of how much autonomy they have.
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