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Bit much for Narendra Modi to take credit on development agenda in Times Now interview

Prime Minister Narendra Modi spoke to Times Now, his first TV interview since taking office, on 27 June, 2016. As with his Wall Street Journal interview the month before (critiqued here), Modi covered a lot of ground, from economic reform and domestic politics to foreign policy. Here, we specifically examine some of his claims regarding his ambitious development agenda.

Narendra Modi has developed a flair for presenting evolutionary policy steps built on his predecessors’ work as revolutionary and original contributions to national development. Take his repeated claim regarding the Pradhan Mantri Jan Dhan Yojana (PMJDY):

It’s not in words but in actual achievement. I had said that within a given time frame, we will open bank accounts for the poor. For something that had not been done for 60 years, setting a time frame for it was in itself a risk.

The Pradhan Mantri Jan Dhan Yojna is not only about opening bank accounts for the poor. Because of this the poor are feeling that they are becoming a part of the country’s economic system. The bank that he was seeing from afar, now he is able to enter that bank. This brings about a psychological transformation.

PM Narendra Modi. APPM Narendra Modi. AP

PM Narendra Modi. AP

Very moving, but it’s a bit much for Modi to hog the credit. It is true that the PMJDY has accelerated the spread of basic savings bank deposit accounts (BSBDA), and increased their usefulness by adding life and accident insurance. But the entire architecture of financial inclusion (BSBDAs, Aadhaar, electronic payments, RuPay cards) was created and implemented long before Narendra Modi took office.

In the two years before Modi, the UPA opened 44 and 61 million BSBDAs respectively, which under Modi jumped to 147 million in 2014-15 and 67 million in 2015-16 (see table below). Assuming conservatively that another government would have opened 61 million BSBDAs per year (as the UPA did in 2013-14), the Modi effect looks something like this:

Screen Shot 2016-05-29 at 10.11.52 PM

A solid step forward? Yes. But with 243 million bank accounts already in place before he was sworn in, the only thing we are seeing for the first time in 60 years is such a giant ego.

We have taken up construction of toilets. I had gone to Chhattisgarh and had the opportunity to get the blessings of one mother. An adivasi mother heard about the scheme for building toilets. She sold her four goats and built a toilet. That 90 old mother uses a walking stick and goes around the cluster of 30 or 40 houses in the tribal village and has been spreading the message to build toilets. This change is becoming the reason for the change in the quality of life.

Encouraging yes, but hardly novel. There is little doubt that open defecation is a public health hazard that contributes to the spread of diarrhoea, intestinal worm infections and other diseases that cause stunting, malnutrition and even death among young children. Which is why the government has for decades sought to furiously build toilets throughout rural India — with a discernible bump in Modi’s second year:

Screen Shot 2016-06-29 at 12.52.27 PM

To be fair, Narendra Modi isn’t claiming exclusive credit here, and he is right to highlight the importance of behavioural change in his adivasi mother example. Open defecation in rural India has dropped much more slowly than in, say rural Bangladesh, partly because Bangladesh has targeted social norms, in addition to building toilets. The UPA’s Nirmal Bharat Abhiyan (launched in 2012-13) and the current Swachh Bharat Abhiyan, both recognised this reality, and Narendra Modi’s vocal advocacy could play an important role here.

That said, reports still suggest that behaviour change is lagging behind (here, here and here). The important point is that toilet construction is necessary, but insufficient by itself to reduce open defecation.

You must have seen that the maximum electricity generation since Independence has occurred this year. The maximum amount of coal mined has been in this year. The maximum length of roads being constructed daily is happening in this year. The fastest loading and unloading of steamers at sea ports is happening now.

As previously explained in Modi’s autopilot achievements, there is always a good chance in a rapidly growing economy that every year will see one or the other record broken. Maximum electricity generation since independence? True for every year since 1975-76. Maximum coal mined? True for every year since 1980-81 (except 1998-99). Maximum length of roads being constructed? Probably true (but look here for context). Fastest loading and unloading of ships? True for every year since 2012-13. These claims work well on Twitter and Facebook, but are mostly meaningless in the Indian context.

After independence, for the first time, we have brought in Pradhan Mantri Fasal Beema Yojana which can cover maximum number of farmers. The farmer will have to pay only 2 percent, only 2 percent, the government will take care of the rest.

Yes, Mr Prime Minister, if we pretend that the following two never happened: the NDA’s 1999 National Agricultural Insurance Scheme (NAIS) and the UPA’s 2013 National Crop Insurance Scheme (NCIS — which clubbed the 2010 modified NAIS, the 2007 Weather Based Crop Insurance Scheme and the 2009 Coconut Palm Insurance Scheme). And the NCIS’ Hindi name has a familiar ring to it: the Rashtriya Fasal Bima Karyakram. The one time the UPA manages to institute a programme without a Gandhi name attached to it, Modi replaces “national” with “prime minister”.

The new insurance scheme is certainly an evolution over its predecessors: premium rates are lower (with the government subsidy and contingent liabilities correspondingly higher), and harvested crops are now covered nationally (earlier this only applied to coastal regions). First time after independence? I don’t think so.

We have brought in Soil Health Card. We have a Soil Health Abhiyan. The farmer will know the fertility of the land through it. Whether a fertilizer needs to be used or not, the farmer will understand. On an average, a farmer with 1 hectare of land will be able to save Rs 15,000-20,000. So we have brought in scientific methods.

Another unfortunate exaggeration. Soil health cards have been in use since 2003, and even the UPA issued around 2.8 crore cards in its final three years, bringing the total in circulation to around 6.8 crore (source here). Modi relaunched the scheme on 19 February, 2015, promising to issue 14 crore cards over the next three years, but progress has been slower than expected. The number of cards issued as on 28 June, 2016 is 2.1 crore, short of the required pace, albeit faster than what the UPA had achieved.

But before you break out your gau-champagne, one reason is that farms were earlier being individually tested. Soil samples are now being taken from 10-hectare (in rain-fed areas) or 2.5-hectare (in irrigated areas) zones, which in effect clubs several farms together. This has sped up the process of issuing soil health cards, but has made the results potentially less relevant to individual farmers.

Now like the initiative we have taken, we have started the Mudra Yojna. More than three crore people in the country comprise washermen, barbers, milkman, newspaper vendors, cart vendors. We have given them nearly 1.25 lakh crore rupees without any guarantee.

The Micro Units Development and Refinance Agency (MUDRA) Bank certainly sounds like a good idea. But there are literally dozens of financing schemes for micro-, small- and medium-sized entrepreneurs. The MUDRA Bank, currently a unit of the Small Industries Development Bank of India (SIDBI), appears to be a supercharged version of SIDBI’s Credit Guarantee Scheme that over about a decade until 2014 had given Rs 76,650 crore in guarantees to 1.6 million small entrepreneurs (as this Business Standard article points out). And the wisdom of dishing credit out via “mega credit campaigns“, which used to be called “loan melas” in an earlier era, will only be known over time.

The bottom line: Mr Modi is overseeing a range of policy initiatives, many of which could well bear fruit. But as his good friend Barack once said: “You didn’t build that.”

This article was first published here.

Uttarakhand govt to provide free geometry box to students

Uttarakhand cabinet on Saturday decided to provide geometry box to all the students from class third to eighth and sanitary napkins to all the girl students in government and government-aided schools.The decision was taken in a cabinet meeting chaired by chief minister Harish Rawat. 6.25 lakh students from government and government-aided schools would be benefited from the decision, Chief Secretary Shatrughan Singh said. It will cost exchequer Rs 3.25 crore annually. Free napkins to girls would cost Rs 15 crore annually, he added.<!– /11440465/Dna_Article_Middle_300x250_BTF –>The Cabinet also decided to contribute half of the premium in Prime Minister Crop Insurance Scheme, that will cost Rs 4 crore annually to the exchequer. However, it will be for rain-dependent crops. The state government will also give Rs 300 per quintal to farmers as bonus for various mountain crops like mandua, ramdana etc.

Why the govt’s plan to double farmers’ income by 2022 will be a tough task

By Abhishek Waghmare

“We are grateful to our farmers for being the backbone of the country’s food security. We need to think beyond food security and give back to our farmers a sense of income security. Government will, therefore, reorient its interventions in the farm and non-farm sectors to double the income of the farmers by 2022.” —Finance Minister Arun Jaitley, budget speech, February 29, 2016.

Representational image. Reuters

Representational image. Reuters

After adjusting for rising costs, an Indian farmer’s income effectively rose 5% per year over a decade (2003-2013), according to an IndiaSpend analysis of various government data, calling into question Jaitley’s declaration of doubling income over the next five years.

Doubling of real incomes would be “a miracle of miracles”, as it would imply a compound growth rate of 12% per annum, Ashok Gulati, former chairman of Commission for Agricultural Costs and Prices and Professor, Indian Council for Research on International Economic Relations, wrote in Indian Express.

The average monthly income from raising crops and rearing animals increased from Rs 1,060 in 2003 to Rs 3,844 in 2013, according to the report Situational Assessment of Agricultural Households by the National Sample Survey Organisation, a compounded annual income growth rate of 13.7%.

The 2003 report considered only land-owning farmers, while the 2013 report considered all agricultural households, including landless labourers, we will consider only incomes from cultivation and rearing animals.

To double the income of farmers by 2022, in nominal (numerical) terms—which do not take inflation into account—would require a 15% annual income growth rate (compounded), according to our estimates.

So, the government would seemingly have to ensure a marginal increase in the rate of income growth—keeping business as usual—from 13.7 % to 15% per year to deliver on the promise of doubling farmer income.

However, there are four hurdles:

* increasing input costs, such as seeds, fertilisers and irrigation
* irrelevance of minimum support price, which the government pays farmers when it buys their crops
* absence of market infrastructure, such as warehouses and cold storages, and
* the fact that 85% of farmers do not benefit from insurance.

Unless these issues are addressed, a farmer’s income will only double nominally. Real income in 2022, adjusted for inflation and increased expenditure, will still be close to 2016 income, according to this report by Devinder Sharma, an eminent food and trade policy analyst.

Rising input costs, declining profits

Profit margins of farmers are declining because of dropping farm productivity and a rise in input costs.

While income from cultivation in 2013 became 3.6 times that in 2003, input costs tripled in the same period, almost nullifying the effect of tripling income.

Does it help any longer that government buys harvests?

Started in 1965, the Minimum Support Price (MSP) is a system of artificial pricing that attempts to ensure just remuneration to farmers. The Commission for Agricultural Costs and Prices (CACP) fixes the MSP of procurement for 23 agricultural items produced in India.

While the announcement of increases in MSP should act as an encouragement to farmers when they sow, three factors do not let this happen:

1. There is very low awareness about MSP — less than 25% of farmers on an average, while for some crops, less than 5% — know about MSP.


2. Over the last three years, the MSP for all crops increased from up to 12% per year, compared with up to 42% in 2012-13, up to 53% in 2011-12, and up to 39% in 2010-11.

3. MSP increases can fuel inflation—and, so, higher monthly expenses—in urban areas.

The MSP for ragi (finger millet) was hiked 52% in 2008-09, for tur dal (pigeon pea) 52% in 2010-11, for rapeseed/mustard 35% in 2011-12, and for jowar 53% in 2012-13.

Farmers get as little as 10% of final price

Efficient agricultural markets can also be a potent tool for poverty reduction, noted this 2012 Reserve Bank of India report.

Farmers do not get remunerative prices due to the limited reach of MSP—less than 25% farmers know about MSP—and an agricultural marketing system that delivers only a small fraction (10 to 30% of the retail price, according to this Business Standard report) of the price to the farmer, said this NITI Aayog report.

Regulatory barriers have constrained investments in agriculture markets and lowered capacity of farmers to be domestically and internationally competitive.

Multiplicity of taxes under Agriculture Produce and Marketing Committee laws in various states have undermined interests of farmers and benefitted middlemen, said the NITI Aayog report.

Only 15% farmers benefited from crop insurance

Only 19 million — or 15% — Indian farmers benefitted from crop insurance schemes announced by the government in 2014-15.

As many as 37.2 million farmers were covered under the three schemes—National Agricultural Insurance Scheme, Modified National Agricultural Insurance Scheme and Weather Based Crop Insurance Scheme — but only half of them benefitted from it.

Half of those who did not use insurance were unaware of crop insurance, the NSS report said.

Pradhan Mantri Fasal Bima Yojana (Prime Minister’s Crop Insurance Scheme), the latest government initiative, merges existing insurance schemes, reduces the premium to be paid by farmers and removes the limit on government subsidy to insurance.

“China started off reforms with agriculture in 1978, and during 1978-84, agriculture GDP (gross domestic product) increased by more than 7% per year and farm incomes by more than 14% per year due to deregulation of prices, halving poverty in just six years,” Ashok Gulati wrote in this research paper.

With agricultural GDP in India growing 1% in 2015-16 (advance estimate), it will not be easy to increase individual farm incomes 14% per year.

(Waghmare is an analyst with IndiaSpend.)

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