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MP Assembly Polls: Bad fiscal math, farm unrest are Chouhan's bigger demons

Long considered the quiet backroom boy of Indian politics, Madhya Pradesh Chief Minister Shivraj Singh Chouhan probably faces the toughest battle of his political career when the state goes to polls in the next few months.

An anti-incumbency of 15 years is just one of the many challenges he faces.

A struggling state economy

The state’s economy has barely kept pace with the national economy during Chouhan’s current tenure, with agriculture actually contracting in three of the last five years, leading to rural unrest.

Money diverted to assuage this growing unrest in rural areas has come at the expense of capital expenditure and a deterioration in the state’s fiscal finances.

At the aggregate level, the state’s economy (Gross State Domestic Product, or GSDP) grew at a much slower pace than the national average in the first three years of Chouhan’s current tenure, shows data from the Reserve Bank of India (RBI). It was only in 2016-17 and 2017-18 that state’s economy grew at a faster pace than the national average.

Political fallout of a disgruntled farm sector

One big reason for the slump in economic activity has been a severe slowdown in agriculture and allied activities, the mainstay of the state’s predominantly rural economy.

Data sourced from RBI shows that agriculture and allied activities had actually contracted in three of the last five years -- 1.93 per cent in FY14, 4.5 per cent in FY16 and 1.6 per cent in FY18. In FY15, the sector grew at a measly 1.3 per cent.

Although 2014 and 2015 were drought years, the contraction in agricultural output means that the state’s handling of water hasn’t been good enough.

And when farm growth rebounded in 2016-17, on the back of bountiful rains, it brought along with it the problem of surpluses, which led to a sharp crash in prices.

Prices of almost all commodities grown in Madhya Pradesh, such as soybean, pulses, other oilseeds, and even onion and garlic plunged, fueling massive discontent among growers.

In the case of pulses, prices dropped at least 15-20 per cent below MSP, while onion and garlic prices dropped to as low as Rs 1-2 a kilogram in some Mandis.

The crash in commodity prices, which came against the backdrop of a nationwide cash shortage due to demonetisation and GST, led to surge in farmer’s protest across the state.

Several organisations called for statewide bandhs and, in one case, in Mandsaur district, the crowd turned violent, prompting the police to open fire. Five protesters were killed.

The firing and subsequent unrest that unfurled across almost all parts of state, particularly in the highly enriched and agriculturally crucial Malwa-Nimar belt exposed Shivraj’s claims of being the foremost agriculture state in India, something which has led to it win consecutive awards from the Central government.

Experts that Business Standard spoke to say that the state’s over-emphasis on production without making proper provisions for storage and food processing led to a crisis of surplus that was aggravated by a drop in demand due to demonetisation and GST.

Strong on intent, weak in practice

A harried state government announced massive procurement of onion and pulses at state-determined prices to assuage farmers.

Thereafter, it launched one of its most ambitious schemes called ‘Bhawantar Bhugtan Yojana’ or ‘Price Deficit Financing Programme’, to directly compensate farmers from the kharif 2017 crop season.

That wasn't all. The state government reintroduced a special incentive scheme for wheat cultivators from the rabi 2018 season onwards and embarked on a massive drive to intervene in the market to support farmers.

Budget documents show that in 2018-19, the state had increase its spending on agriculture and farmer welfare by a staggering 87.4 per cent to Rs 92 billion, from Rs 49 billion in 2017-18. It had spent a mere Rs 45 billion in 2016-17.

Clearly, farmers' anger and the unrest among the electorate seems to have worried Chouhan.

But, as has been the case with several schemes in the state, critics allege that ground-level corruption continues to impact their effectiveness.

In Bhawantar, allegations abound that traders, in connivance with gullible farmers, artificially pushed down prices during the time when sale was allowed under the scheme, only for prices to move up soon after the window closed.

In the case of direct procurement too, allegations have surfaced of one produce being sold multiple times to state agencies in connivance with mandi officials, in order to fleece the state government.

While, these allegations might not hold water, they have dented the government’s credibility in the eyes of the electorate.

Impact on state finances

The largesse that Chouhan showered in the aftermath of farmers' agitation has taken a toll on the state’s finances, with its fiscal deficit rising to 4.3 per cent in FY17.

And though the state has budgeted to bring this down to 3.2 per cent in FY19, it seems near impossible,  given the possible announcement of a series of sops ahead of the assembly elections.

The state’s revenue stream has also come under pressure -- its own tax and non-tax revenues were actually lower than the budgeted target in 2017-18.

This shortfall coupled with the increase in spending to quell rural distress led to a cut in capital expenditure.

Data from PRS Legislative Research shows that as against a budgeted capital expenditure of Rs 354 billion in 2017-18, the government only spent Rs 297 billion. This is even lower than the Rs 322 billion spent in 2016-17.

Perhaps as a result, the pace of state highway construction has barely registered a rise the past few years. But the state has fared better on power generation and per capita availability of power has grown at a much faster pace than the national average.

However, issues like the Mandsaur firing and allegations of corruption in Vyapam have given the opposition Congress a great deal of ammunition to target the Chief Minister in an election year.

Unlike in the past, this time around Shivraj’s own image is under cloud -- something which he might need to address as he prepares for the biggest challenge in his long political career.

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