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December 2005

Govt policies are the main cause of suicide of farmers in the Vidharbha

Link: The Indian Economy Blog.

Sonia Faleiro writes in her superb article on Vidarbha’s farmers of something an activist there said to her:

    Women tell me that each evening, they stand at the door terrified that their husband may not return.

Read the full thing.

Would any of the readers or fellow contributors of this blog like to offer a diagnosis and a prescription for the situation in Vidarbha?

I hail from the Vidharbha region and we used to own agri land in the same region not very long ago. I read a lot of editorials in the local press blaming "illegal" moneylenders for "harassing" farmers and forcing them to commit suicide. To have a reality check I talked with one of the farmers in our native village. The feedback I received was that government is exploiting the farmers through its monopoly procurement of cotton scheme. Govt. is paying the farmers below the market price. Not only that, payment is not immediate and govt is also taking out previous years loan payments before paying the farmers. Moneylenders actually help farmers by lending money during their need. The land that is pledged against the loan is sold off at the market rate to recover the money and rest paid to the farmer. Therefore, there is no exploitation there. By restricting the entry of moneylenders through licensing and prosecuting "illegal" moneylenders govt is raising the interest rates and reducing the supply of the credit. The best solution is to allow anybody to lend money to the farmers and thus increase the supply of credit to the farmers and also reduce the interest rates. Coupling that with free market in the farm produce (by abolishing the monopoly procurement scheme) will solve most of the problems.

By prosecuting "illegal" moneylenders govt is ensuring that next time farmers won't even get whatever credit/loans they were getting. Thus, next time around farmers will commit suicide for the lack of access to the credit/loans.


MPs in India are underpaid

Rediff article, How much does an MP earn?, describes the compensation scheme for MPs in India:

And, here are some more less-known facts about the Indian lawmaker: On paper, the salary of an MP in India is Rs 144,000 per year (about $3,200), which works out to just Rs 12,000 (about $266) per month.

But it is meagre only if you don't consider the numerous allowances and freebies an MP is entitled to. Here is a look at the allowances and perks that every MP -- India has 790 of them -- enjoys.

Each Indian MP gets:

    * Rs 14,000 (about $311) for office expenses every month, which includes Rs 3,000 for stationary items, Rs 1,000 on franking of letters and Rs 10,000 for secretariat services.
    * A monthly constituency allowance of Rs 10,000.
    * A daily allowance of Rs 500 when Parliament is in session. Parliament has three sessions every year. The Budget Session (February to May), Monsoon session (July to September), and Winter session (November and December).
    * A daily travel allowance of Rs 8 per kilometre.
    * Each MP and his spouse or companion are entitled to unlimited, free, first class railway travel anywhere in the country.
    * They can also travel anywhere in India -- with a spouse or companion -- 40 times by air free of cost every year, business class.
    * An MP gets a sprawling bungalow in the heart of New Delhi for which he pays a rent of just Rs 2,000 (about $44) per month.
    * Each MP gets near-free electricity of 50,000 units every year. And free water.
    * The MP's bungalow is furnished -- with air conditioners, refrigerators and television sets -- free of cost. Maintenance of the house -- including washing of sofa covers and curtains -- is done free of cost by the government.
    * MPs are entitled to three phone lines and 170,000 free local calls every year.
    * When an MP travels abroad officially, he is entitled to free business class air tickets. He is also paid a daily travelling allowance, which varies depending upon the country being visited.
    * Most medical expenses of MPs are taken care of by the Contributory Health Service Scheme of the Union government.
    * Each MP also gets Rs 20 million (about $434,782) each year from the Members of Parliament Local Area Development Fund. But the MP does not get the money directly. Instead, it is transferred to respective district headquarters where projects are being implemented.
    * After an MP completes a term in office, he is entitled to pension. The basic monthly pension amount is Rs 3,000 (about $66). But it goes up according to the number of years an MP has served in Parliament.
    * The Comptroller and Auditor General of India last year alleged that many MPs have violated norms in the usage of this money.

The wages (Rs 12000 per month) and pension (Rs 3,000 per month) are ridiculous.
The article also confuses compensation paid to the MPs and amount given to MPs for doing their jobs. The fully furnished accomodation is given in Delhi during their term. But how does this enable a MP to own a house after the term is over? Also, if his/her family lives outside Delhi, they will have to move to Delhi to take advantage of the housing. I don't think this really helps MPs much in their personal capacity.  Medical expenses  are paid by the Govt. only during their term. Unlimited free travel by rail and air is also available but only during the term. The constituency allowance and local area development fund is also for spending on the constituency and not for personal use. Besides, free travel, phone, electricity and other perks cannot be sold in the market for cash. How can then MPs take care of educating their kids, purchasing house, retirement savings, and so on? Getting elected requires tremendous amount of time, efforts and money. That means, they will have to neglect their jobs or businesses for many years before they can hope to get elected. Plus, it is difficult to rejoin their job or businesses after their term is over.
Thus, I believe that compensation is extremely inadequate. If we hope to have honest and talented legislatures we better make sure that incentives are right.