BUDGET AND AGRICULTURE SECTOR
FOZIA AROOJ (email@example.com)
June 16 - 22, 2008
After the announcement of federal budget 2008-09 there is a mixed expression and a blend of criticism and appreciation from all walks of life. Government has claimed the budget to be pro agriculture and pro poor on account of its main emphasis on agriculture development in order to restore its declining share in the economy of the country. The economic indicators are not exhibiting a rosy picture but instead a bleak result of the previous fiscal policies has come to the surface.
In order to explain the causes of huge deficits and shortfall from the targets prior policies and their fallouts were categorically mentioned during the budget session 2008-09. An overview of the economy as explained entails that during 2007-08, the economy grew at 5.8% compared to the target of 7.2% and the actual growth rate of 6.8% in 2006-07. During the period under review both manufacturing and agriculture sectors have recorded very low growth of 5.4% and 1.5% respectively; Inflation is running at 11% as compared to 7.8% in 2006-07. Budget deficit after concerted efforts of this government is still estimated at 7.0% of GDP, against the target of 4%.
This grim situation is proportionately reflected in all sectors of the economy. A sector wise analysis of the economic performance reveals a lamentable picture of some areas. One of the sidelined spheres in this context has been agriculture and livestock which are the backbone of the economy but remained neglected and prioritized secondarily during last decade. As a result the agriculture sector lost its 70% share in the economy and slid down to a meager 30% level. However numerous measures and policy directions are announced to be put in place to ensure relief and motivation to the farmer as well as incentives to the agriculture sector to contribute its due share to the national economy. A critical overview of these proposals is put forth:
1- The support price of wheat is increased from Rs510 to Rs625 per 40 kg. It is also vowed that there will be a revision of the support price for the next year's wheat crop in August-September i.e. before the next sowing season keeping in view the input cost and prevailing international prices. Economists within the country are strongly opposing this increase in view of the consequences when the prices of wheat flour would jump from existing national average of Rs 24 to Rs 31 per kg and the prices of Roti and Nan will jump from Rs 4 to Rs 9 in the country, Incase the government decides to increase the wheat flour price further than the miseries of the urban peoples are going to increase many fold. Further increase in the wheat flour prices would benefit the farmers of the rural areas but would badly disturb the budget of the urban population in the country.
2- Subsidy on DAP fertilizer is more than doubled from Rs470 per bag to Rs1,000 per bag. This measure is taken in view of steep increase in its international prices which is discouraging the use of this important fertilizer and thereby adversely affecting productivity. Subsidy on other fertilizers will also continue. A total allocation for subsidy on fertilizers has been increased from Rs25 billion to Rs32 billion. In addition there is a complete exemption from sales tax and other duties on imported and local supply of fertilizers and pesticides, so that the farmers can get these at much cheaper prices. The effect of exemption from duties in respect of both fertilizers and pesticides is Rs6 billion.
Farmers have shown mixed reaction on this measure though the government has shown its good intensions by lifting GST on fertilizer and also subsidizing DAP as it is yet to be seen how effectively it will succeed in bringing down the prices of fertilizers. It must ensure that all bags of the DAP have price printed on them. The dealers should also be compelled to display price list at their shops and it should also watch against the possibility of importers further increasing prices without any reason. If all these steps are not taken, the possibility of major portion of subsidy ending in wrong hands could not be ruled out. Primary reason for this apprehension is that previously this subsidy largely went to importers or manufacturers rather than being passed on to farmers. A glimpse into the yearly profits statement of fertilizer companies reveals where the subsidy ends up. The manufacturers' rate of profit is much higher than users of fertilizers, but the government keeps announcing subsidy without consulting farmers.
3-There is an allocation of Rs75 billion in the Public Sector Development Program (PSDP) to improve the availability and efficient use of water resources through construction of dams, rehabilitation of irrigation, improvement of drainage system, lining of canals and water courses throughout the country. This allocation of funds is in principal unopposed and immensely sought after but it is deplorable that no new dam is announced by the government. At this critical point where water reservoirs are depreciating rapidly the construction of Kalabagh Dam is also ruled out. This decision is to be reconsidered as a colossal amount has already been invested on feasibility studies of this project and there has been a capital outlay of around Rs. 1 billion from the national exchequer.
4- An Exemption of 10% custom duty on import of rice seeds is suggested in order to ensure healthy and quality production of rice in the country. But it is pertinent to relate that Pakistan has the best variety of rice and there was hardly any need to import hybrid seed, especially when it has wreaked great damage to farmers last year. But this incentive seems inclined more towards profit maximization of multinationals which can now avail duty free import of products.
5- Government has also shown concerns over availability of credit to agriculture sector. Disbursement of loans to farmers has been limited compared to industry and other sectors. At present regretfully agriculture's share is hardly 4% of the banks' total debt portfolio. During the year an additional amount of Rs30 billion will be made available in addition to total credit to agriculture sector amounting to Rs130 billion disbursed during 2007-08. It is notable that nothing tangible has been done so far to provide credit for livestock farming or proper insurance cover. The livestock farming has tremendous potential to offer attractive returns to banks as well as to the insurance firms. There is hardly 5% mortality in livestock. Government has also vowed the revamping of Zarai Taraqiati Bank Limited (ZTBL) so as to broaden its outreach.
Besides the fore mentioned main steps several miscellaneous plans are also outlined including construction of cold chains to ensure that agriculture produce retains it value and quality and to facilitate its export, arrangements for import of bulldozers through foreign collaboration to increase and improve the cultivable area, duty free import of machinery and equipment for grain handling and storage facilities to be de-linked from the conditionality of local manufacture. This will largely help in improving the grain handling and storage facilities in the country. It is also proposed to waive off the levy of 5% Federal Excise Duty on premium of crop insurance policy also. These measures shall yield higher productivity and substantial raise in the income levels of the common man. To enhance supply of quality seed to farmers, a National Commercial Seed Production Program is being prepared. Negotiations have been started for fast track, formal release of Bt cotton varieties in Pakistan. This would help in making our farmers more competitive in production of cotton. Foreign investment in agriculture sector will be encouraged to increase our productivity and develop cultivable areas. Large tracts of land will be made available to foreign investors to induct capital and technology in our local farming sector.
LIVE STOCK & DAIRY
Livestock and dairy is a major source of income and livelihood for the rural population. Pakistan is the fifth largest producer of milk. However, this potential has not been optimally leveraged. In present budget government has announced allocation Rs. 1.5 b for "White Revolution" .It is proposed for the projects through the PSDP in this sub-sector. These include livestock production and development of meat production, Veterinary services for livestock, milk collection and processing and dairy production and development program, establishment of an integrated national animal and plant health inspection services facility and up-gradation of animal health laboratories at NARC for poultry diseases.
A deep insight into the funds unfolds the reality that Rs1.5 billion to bring "white revolution" through promotion of livestock sector in the budget 2008-09 is very insufficient. Around $300 million (about Rs20 billion) of foreign exchange are already being spent on importing powdered milk annually to meet the demand of the urban areas. In addition Rs350 million had been set aside for milk collection/processing and dairy production and development program. In Pakistan only 3 to 4% of the total milk is processed and marketed through formal channels whereas the remaining reaches consumers through an extensive, multi-layered distribution system of middlemen. It is estimated that presently only about 22% of milk production is processed in Pakistan, about 57.5% is supplied to urban areas in raw form in most unhygienic conditions causing real health hazards. Rest is consumed by the farmers especially in the far-flung areas for lack of proper facilities to take it to deficient areas.
Government has planned in the fisheries sector such important projects like aqua culture and shrimp farming, stock assessment survey program in EEZ of Pakistan and fisheries training center in Gwadar are being undertaken for which an allocation of Rs1.1 billion is proposed in the budget.
To evaluate the practicality and potential success it is important to note the key assumption on which the budget is based. These are outlined as follows:
1. GDP growth will increase by 5.5 per cent in the year 2008-09
2. Inflation will be contained at 12 per cent;
3. Gross investment to GDP ratio will be maintained at 25 per cent;
4. Fiscal deficit will be contained to 4.7 per cent;
5. Current account deficit will be reduced to 6 per cent of GDP;
6. Foreign exchange reserves will be increased to $12 billion. Development Plan
Overall it sounds to be a good budget as far as agriculture and manufacturing is particularly concerned but one has to see how it translates in reality. Government has focused on these sectors to raise their productivity and competitiveness. But it is important for the economic managers to adhere to the assumptions taken for construction of this budget in order to achieve the targets.