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Budget 2012: Farce of food subsidy being played out again-Nidhi Nath Srinivas

The UPA-II has used the Budget to again play politics with hunger. But it has paid no heed to the ticking time bomb of growing social tensions as 58 million Indians living off agriculture slide deeper into poverty.

The Economic Survey says more than half the population is dependent on a sector whose share in the economy is shrinking. The urban-rural income divide is therefore steadily widening, a tinder box that could explode in the next general election. Hunger is pandemic because people can't afford food.

To worsen matters, food supply is inadequate due to stagnant farm yields and shrinking arable land, while food demand is rising on the back of income and population. With an eye on the 2014 general elections, Pranab Mukherjee makes the right noises about tackling hunger.

The National Food Security Act is the pet project of UPA chairperson Sonia Gandhi. It promises wheat at Rs 2/kg and rice at Rs 3/kg to a majority of Indian voters. Since his own cabinet colleagues have raised doubts about the feasibility of such a mammoth legal obligation, the FM says money won't be a constraint for the scheme. But his actions are a far cry.

The food ministry estimates this Gandhi family dream would cost the exchequer at least Rs 100,000 crore annually. But the FM has allocated only Rs 75,000 crore for it. That's bit of a joke since the government has already spent Rs 70,000 crore this year on the Food Corporation of India's grain procurement and distribution.

The expenditure doesn't include impact of the higher wheat MSP which will hit home once FCI begins procurement in April. Add to it escalation in rice procurement costs after the annual increase in MSP and you can see why another Rs 20,000 crore may be needed merely to maintain the existing ration shop coverage. If the National Food Security Act indeed kicks in this year, it will be financed at the cost of the fiscal deficit target.

The FM's strategy on finding the necessary cash isn't credible anyway. The Budget says food subsidy need not be rationalized because money will be saved on fuel and fertilizer sops. But already pushed to the wall by its allies, Congress won't dare raise urea and diesel prices.

The new urea investment policy is stuck because decontrolling prices is the key to attracting capital. New fertilizer subsidy delivery mechanisms such cash transfers to farmers are three years away according to the plan. Then too these mechanisms will plug leakages, not turn off the subsidy tap.

Since a timid desire to push usage of indigenous products rather than imported DAP is the Budget's only weapon to cut fertilizer subsidies, no dramatic moves are likely. In 2011-12, food, fertilizer and fuel subsidies were 20%, 34% and 190% higher than respectively budgeted.

History will repeat itself in 2012-13. Government finances will remain acutely strained, leaving no room to feed more hungry people. At this point, a savvy political party would realize that while largess is good, people turn enthusiastic supporters only when a government helps them become self-reliant and economically independent. Indeed this is the main lesson for the Congress after the Uttar Pradesh poll debacle.

Instead, the Budget wastes a good opportunity to bootstrap agriculture. The fund allocation is guided by routine and tokenism. The money allocated for agricultural credit is mainly to resuscitate dying regional rural banks. Interest rates have been lowered for sixmonth loans but few farmers take on the massive paperwork when they can get gold loans processed literally in minutes.

As in China and Brazil, seed technology needs a massive financial push to accelerate production. Merely Rs 200 crore was allocated. More paddy farmers will commit suicide in eastern India this year because the Budget promises Rs 1,000 crore to increase production in a region where government procurement at MSP is negligible. Rice mills owned by local politicians that thrive on dirt-cheap paddy will certainly benefit.

The Budget's only welcome step is a tax exemption for extension work by companies since the government's network is defunct. Indian agriculture is equally about food and livelihood. Farmers are desperate for new ideas and new technology to keep the wolf from the door.

Those still trapped in villages are angry at the vast gulf between their aspirations and opportunity. Through fresh policies for seed, fertilizers, water, credit and marketing, the Budget could have brought cheer to millions but failed. Instead it makes a half-baked promise to let no one sleep hungry while their nightmare continues.