THE LEADER ARTICLE: Country Roads: Budget Can Reconcile CMP, Reform Objectives

Can finance minister P Chidambaram press ahead with economic reform while being committed to the Common Minimum Programme (CMP)? Many people think that the sun rises in reform and sets in the CMP and never the twain shall meet. Such scepticism is misplaced. Revising the income tax slabs and rates or introducing value added taxation is obviously feasible within the framework of the CMP. What is more interesting is that it is entirely possible to marry the core, rural thrust of the CMP with the cutting edge of reform.
Rural India is poised on the cusp of an amazing revolution, thanks to three fully functional futures markets in commodities, whose coverage of farm produce and economic agents is expanding steadily. Two of them have sponsored electronic spot exchanges as well. These have far-reaching implications, led by the Indian kisan''s liberation from centuries-old bondage to the middleman.
When Pepsi offered a guaranteed price of Re 1 per kg of tomatoes to farmers in Punjab in the early nineties, that was a mini revolution. Even though tomatoes retailed at Rs 10-20 a kg in Delhi, farmers did not get even Re 1 a kg. The futures market generalises the revolution, offering farmers, directly or through intermediaries, the guarantee of a nationally discovered price. This farewell to manipulation by the middleman makes farming much less of a gamble, enhances investment leading to productivity gains and greater farm incomes.
But right now, what could be a source of ecstasy for the farmer is plain agony. Even a farmer in a remote village can find out the futures quotes for his produce, through increasingly ubiquitous telephones or the ticker running on Doordarshan''s news telecast. But that price can be realised only if his produce can be taken to a location where buyers come, that is, if he becomes part of the market. With no roads to carry his produce to a mandi or without cold storage facilities for perishables, the farmer can only look at the price quote for his produce with longing and anguish.
An all-India network of roads that connects every one of India''s 6,34,321 villages will change that, in tandem with warehouses, manned by professional warehouse managers issuing warehouse receipts. The finance minister can announce a huge programme of rural road building and electrification, make discretionary Central funding conditional on states, abolishing laws that restrict farm produce marketing, amend the law to make warehouse receipts negotiable instruments, encourage cooperatives and food processing companies to set up cold storages and warehouses.
Building the huge rural network of roads would tie in with the CMP''s employment guarantee promise. Bringing all of India''s agricultural produce into the market would not only boost incomes across rural India directly but also lay the groundwork for what has the potential to be the world''s largest food-processing industry. At present only 2 per cent of India''s fruits and vegetables are processed. Less than 10 per cent of farm produce has access to cold storage and potatoes account for 80 per cent of all cold-stored stuff. Swift change is possible on these fronts, creating jobs by the millions and income that boosts demand for all kinds of goods and services.
Massive rural investment offers other gains. This investment has to be financed. The least complicated way to do that is large-scale disinvestment to fetch, say, Rs 20,000 crore. The CMP prohibits only outright privatisation of profitable PSUs. Sale of minority chunks in ONGC, Indian Oil, NTPC, BSNL, etc is eminently feasible. And eminently desirable from another angle.
Continued foreign institutional investor inflows and renewed retail investor zeal routed via mutual funds making hugely successful public issues will bring large amounts of fresh funds to the market. So will employees'' provident funds, new pension funds and insurance companies growing fast across under-insured India. Unless there is a big jump in the availability of quality shares to buy, the result would be to ramp up the price of existing stocks, perhaps to unstable levels that increase the risk of a market collapse. If additional fund flow to the market is say, Rs 35,000 crore, it would be prudent to bring at least Rs 20,000 crore worth of government-held, non-traded shares to the market.
Credit offtake, too, is on the rise. Continued FII inflows are a way to increase the money supply and keep interest rates low, through the sale of rupees when RBI purchases these dollars. To keep FIIs interested, you need to increase the supply of good scrips at realistic prices. The finance minister could use the disinvestment scheme to bring ever-larger numbers of the public to direct ownership of companies. In the US, half the number of households own shares, but in India, less than 5 per cent do. Raising that proportion is feasible reform.
Another significant overlap of CMP and reform could be a massive IT initiative to create a database of the poor, and gradually of the entire population. This is a pre-requisite for meaningful reform of subsidies and would come in handy for everything ranging from voter ID to establishing individual credit histories that allow the honest among the poor to convert their good conduct as borrowers into lower rates of interest on loans.
Rural telecom is a burden for telecom companies but just great for banks that want to extend their rural reach using ATMs, mobile offices and micro-credit agencies. The short point is that rural uplift and reform, instead of being toxic to each other, grow together.