Why in News: –
The Government of Tamil Nadu on Friday announced waiver of Rs 12,110 crore farm loans availed by 16.43 lakh farmers from cooperative banks.
Syllabus: – GS-3:
Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System-objectives, functioning, limitations, revamping.
Tamil Nadu farmer’s welfare budget provision:
- In addition to Rs.5, 000 crore has been made in the Interim Budget Estimates 2021-22 for the crop loan waiver
- The Government of Tamil Nadu took on the additional burden of premium subsidy and adopted a new co-insurance model on a 80:20 (Center-State) proportionate sharing basis to ensure that the farmers have adequate risk coverage in the current year under Pradhan Mantri Fasal Bima Yojana (RPMFBY).
- To improve farmers’ income across the State, the Tamil Nadu Mission for Sustainable Dry Land Development has been relaunched to cover a further 25 lakh acres over three years.
- To honour the services of renowned farmer leaders, the ‘Thiru C.Narayanasamy Naidu Paddy Productivity Award’ is given from this year onwards.
No support to PSUs
- The fiscal indicators and finding out the fiscal capacity of the Government of Tamil Nadu to finance subsidies in the ensuing years are apt.
- The opportunity cost of squeezing the Budget to finance subsidy is the lack of direct budgetary support to public sector undertakings (PSUs) that provide public utilities.
- Subsidies increase revenue expenditure, and without corresponding increase in tax and non-tax revenue for the government, the revenue deficit should naturally increase.
- Though every year the government claims that the revenue deficit ratio and fiscal deficit ratio are within statutory limits, the desirability and sustainability of debt have yet to be examined.
Revenue deficit ratio:
- The farm loan waiver announced in 2016 has been provided the funds in the subsequent five Budgets. In spite of this, the revenue deficit ratio was around 1.5 in the three-year period, 2017-20.
- During the 2017-20 period, the all-States’ average revenue deficit ratio was around 0.4, it was a near revenue balance in Karnataka and Telangana, and it was more than 2 in Kerala and Andhra Pradesh.
Cause of concern (Deficit):
- The cause for the elevated revenue deficit ratio in Tamil Nadu has been the increasing primary deficit ratio from 9 to 1.3.
- Primary deficit is the revenue deficit net of interest payments and the implication is that the government is unable to contain recurring expenditure such as subsidies and other discretionary expenditures within the limits of recurring non-debt revenue.
- as per the revised Budget estimates, the fiscal deficit is expected to widen to Rs.96,889.97 crore in 2020-21, which is 4.99% of the Gross State Domestic Product (GSDP).
Extra-budgetary transactions for PSU:
- The PSUs offer public utilities, which otherwise should be directly provided by the government. It is important that the government provide adequate direct budgetary support to PSUs if they price the public utilities below the unit cost.
- The adequacy and quality of public utilities depend on the financial health of these PSUs. But in the absence of direct budgetary support, we can fix the financial sickness of PSUs to be a symptom of a fiscal tumour.
- Almost all the PSUs should have incurred massive losses and amassed unserviceable debt during the COVID-19 period and this will accelerate in the couple of years to come.
Way Forward: –
- The possibility for increasing the recurring revenue, in a rule-based fiscal policy, the solution lies in “harmonisation of commodity taxation and restriction of deficit ratios, higher economic growth and tax elasticity” can help.
- The lack of fiscal space and opportunity cost of expenditure profligacy of the State show that politicians only think ‘in the long run we are all dead’ and ‘let us achieve short-run electoral victories by showing the low hanging fruits of subsidies’ modes.
How far is the loan waiver being helpful in improving the farmer’s income?