India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

Farmer Welfare Programs
Low-Interest Loans for Farmers
Implemented through the National Bank for Agriculture <strong>and</strong> Rural Development <strong>and</strong>
starting in the 2006/07 crop year, <strong>India</strong>’s central government provides approximately
$400 million per year in interest rate support on farm loans under a program called the
“Short-Term Rural Co-operative Credit Structure.” Under the program, which lowers
farmers’ operating costs, farmers are eligible for short-term crop loans <strong>of</strong> up to Rs.
300,000 ($7,150) at a preferential annual interest rate <strong>of</strong> 7 percent, roughly 2 percent
below the market rate. These loans came to approximately Rs. 2.8 trillion ($70.1 billion)
during MY 2008/09. 83 In the <strong>India</strong>n government budget for FY 2009/2010, farm loans
totaling Rs. 3.25 trillion ($65 billion) will be granted at a preferential annual interest rate
<strong>of</strong> 6 percent. 84
Debt Write-Offs for Farmers
<strong>India</strong>’s 2008 central government budget wrote <strong>of</strong>f loans for farmers totaling more than
Rs. 653 billion ($14.2 billion). 85 The relinquished loans represented 1.6 percent <strong>of</strong> <strong>India</strong>’s
GDP. 86 Of the total, $2.4 billion were one-time waivers <strong>of</strong> overdue loans. These
payments assisted an estimated 40 million farmers, more than 30 million <strong>of</strong> whom were
classified as small <strong>and</strong> marginal farmers. Some <strong>India</strong>n analysts have commented that
such actions by the government create a moral hazard for farmers, who will assume that
future loans are likely to be paid <strong>of</strong>f by the government in a similar way. 87 Like lowinterest
loans, debt write-<strong>of</strong>fs lower <strong>India</strong>n farmers’ operating costs.
National Rural Employment Guarantee Act
The National Rural Employment Guarantee Act (NREGA), passed in August 2005 <strong>and</strong>
brought into force in February 2006, provides 100 days <strong>of</strong> employment every year to tens
<strong>of</strong> millions <strong>of</strong> rural poor <strong>and</strong> migrant laborers. Since its creation, the act has generated
more than 4.5 billion person-days <strong>of</strong> employment <strong>and</strong> paid more than Rs. 350 billion
($7 billion) in wages, primarily to poor <strong>and</strong> migrant farmers. 88 About 70 percent <strong>of</strong>
NREGA projects involve watershed management, water conservation, forestation, <strong>and</strong>
l<strong>and</strong> development. 89 In the <strong>India</strong>n central government budget for FY 2009/10, announced
July 6, 2009, NREGA was funded at Rs. 390.1 billion ($7.8 billion), an increase <strong>of</strong>
144 percent from FY 2008/09 <strong>and</strong> more than the program’s combined funding over the
previous three years. 90
This program boosts incomes for poor farm laborers, but it also increases operating costs
for farmers that use migrant labor. NREGA is blamed by farmers for a shortage <strong>of</strong>
laborers in agricultural regions such as the state <strong>of</strong> Punjab. Even though farmer-owners,
83 OECD, Agricultural Policies in Emerging Economies, 2009, 104.
84 Haq, “Seeds <strong>of</strong> Hope <strong>and</strong> Change,” July 7, 2009.
85 Government <strong>of</strong>ficial, interview by Commission staff, Mumbai, <strong>India</strong>, May 13, 2009. The budget was
presented in February 2008 by Finance Minister Palaniappan Chidambaram.
86 The Economist, “Waiving, Not Drowning,” July 3, 2008.
87 <strong>India</strong> Knowledge@Wharton, “<strong>India</strong>’s 2008 Budget,” March 6, 2008; industry representative, interview
by Commission staff, New Delhi, <strong>India</strong>, May 9, 2009.
88 Swaminathan, “Synergy between Food Security Act <strong>and</strong> NREGA,” June 1, 2009.
89 Mukherjee, “<strong>India</strong> to Quantify Climate Benefits from Poverty Project,” June 1, 2009.
90 Haq, “Seeds <strong>of</strong> Hope <strong>and</strong> Change,” July 7, 2009.
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