Agriculture subsidies
The government stops spending on necessary programmes, without coming up with better alternatives.
This newspaper has been strongly in favour of the government’s attempts to balance its budget, even when this has meant some sacrifice on the part of citizens. What we find disappointing, however, is when the government stops spending on necessary programmes, without coming up with better alternatives. A classic case of this was the removal of the subsidy on loans to the agriculture sector, a move expected to save the federal government billions of rupees a year.
Unto itself, this policy decision by the economic coordination committee (ECC) of the cabinet has merit. It removes a subsidy that, according to former State Bank governor Ishrat Hussain, disproportionately benefits richer farmers and does little to improve access to credit for smaller farmers. And it also saves the government money at a time when cutting expenses has become a critical priority for the country’s economic management team. Yet there are several concerns. The government has not come up with any alternative policies designed to improve access to credit for small farmers who collectively constitute some of the poorest elements of Pakistani society. We would understand if the government had a better idea than subsidies and indeed would applaud them for it. But they appear to not even have made the effort to come with one. We consider that to be a dereliction of duty on the part of the ECC and the finance ministry. The most effective way to raise the rural population out of poverty is to help them increase their productivity, a process that requires investment, which in turn needs access to capital. The Zarai Taraqiati Bank (ZTBL) has largely been a failure in providing this but that does not mean that the goal is not worth pursuing. The government might, for instance, try recapitalising and reorganising the ZTBL so that it becomes a more effective lending institution. It could also encourage the provinces to expedite the process of computerising land records, so that poor farmers have authentic documentation of their assets, which they might be able to pledge as collateral to banks.
Published in The Express Tribune, October 24th, 2011.
Unto itself, this policy decision by the economic coordination committee (ECC) of the cabinet has merit. It removes a subsidy that, according to former State Bank governor Ishrat Hussain, disproportionately benefits richer farmers and does little to improve access to credit for smaller farmers. And it also saves the government money at a time when cutting expenses has become a critical priority for the country’s economic management team. Yet there are several concerns. The government has not come up with any alternative policies designed to improve access to credit for small farmers who collectively constitute some of the poorest elements of Pakistani society. We would understand if the government had a better idea than subsidies and indeed would applaud them for it. But they appear to not even have made the effort to come with one. We consider that to be a dereliction of duty on the part of the ECC and the finance ministry. The most effective way to raise the rural population out of poverty is to help them increase their productivity, a process that requires investment, which in turn needs access to capital. The Zarai Taraqiati Bank (ZTBL) has largely been a failure in providing this but that does not mean that the goal is not worth pursuing. The government might, for instance, try recapitalising and reorganising the ZTBL so that it becomes a more effective lending institution. It could also encourage the provinces to expedite the process of computerising land records, so that poor farmers have authentic documentation of their assets, which they might be able to pledge as collateral to banks.
Published in The Express Tribune, October 24th, 2011.