By: PK Joshi, Director-South Asia, International Food Policy Research Institute, New Delhi. An adapted blog first appeared in Financial Chronicle.
Coming out of demonetization, the budget raised expectations of increasing incomes for poor and middle income groups. Pre-budget discussions in professional and political circles were predominantly centered on how agriculture and the rural poor will share the benefit of demonetization. The Finance Minister’s speech began on the premises of containing inflation, reducing corruption, improving governance and optimizing natural resource management. The key challenges noted concern global protectionism and commodity prices, which may affect Indian markets, especially agri-food commodities. In sync with expectations, the overarching aim of the budget is to distribute the fruits of economic growth to farmers, the poor and marginalized groups living below poverty line.
The Finance Minister has attempted to uplift the agricultural sector by allocating sufficient resources for making the sector more productive, profitable, sustainable and resilient. The budget presents a clear road map to protect farmers against various risks and increase agricultural incomes through promoting irrigation development, improving soil health, and facilitating access to markets, credit, and agricultural insurance. It is noteworthy that the provisions for agriculture presented in the budget this year are in continuation of the previous budget. Last year, Indian agriculture experienced a severe condition of monsoon failure resulting in miserable agricultural growth, which entirely turned around to impressive growth of 4.1 percent in 2016-17. It is laudable to see that all efforts are being made to reach the target of doubling farmers’ income by 2022.
However paradoxical it may sound, even in a rising economy and emerging global power like India, agriculture is still confronted by the vagaries of the monsoon, more so as around 60 percent of the cropped area is rain fed. The budget provisions including the establishment of a long-term irrigation fund and the expansion of agricultural insurance coverage are expected to boost the agricultural sector, making it less risky and more resilient. The budget also gives due attention to production and marketing aspects of agricultural commodities. Expanding the irrigated area through the Prime Minister Irrigation Scheme will significantly increase productivity, promote diversification in favor of more remunerative commodities and reduce the risk of climate variability, especially uncertain rainfall. It is interesting to see that the allocation to MGNERGA has been increased and has been linked with asset building, especially the construction of farm ponds for irrigation, assuring multiple benefits for increased employment generation in rural areas, high crop yields and reduced risks due to uncertain rainfall. Agricultural insurance aims to increase the risk bearing ability of farmers, encouraging them to adopt new technologies and to borrow for buying inputs (like fertilizer, pesticide, farm machines), thus, contributing towards accelerating agricultural production during a normal year. In the event of a bad year by virtue of weather shocks that cause crop failures, farmers may claim a large part of the cost incurred during production. The dairy sector which acts as a risk cushion and an important source of income also finds a place in the budget. To boost the dairy sector, a corpus of Rs 2000 crores with NABARD has been established which will help in creating dairy infrastructure leading to the increased production of milk and milk products. India is a global leader in milk production; boosting the processing and value addition of milk will increase the incomes of marginal and small farmers.
The provision of soil health cards is re-emphasized by establishing mini soil testing labs in all the Krishi Vigyan Kendras, which are considered to be knowledge and innovation hubs for farmers. While soil testing is critical for the balanced use of nutrients which are required to improve soil health and increase crop productivity, it must be insured that farmers follow the recommended amount of nutrients. Soil testing must also be supported by on-farm demonstrations on soil test based nutrient management. Saving water through micro-irrigation systems and improving soil health are among the ways forward for improving the sustainability of natural resources in agriculture. A dedicated micro-irrigation fund with NABARD will improve water management practices. The target of Rs 10 lakh crore is a boost to agricultural credit, inclined towards the neglected areas by covering a large number of farmers, especially marginal and small farmers, in an organized banking system. Waving a fraction of interest on agricultural credit will surely give some relief to farmers.
The budget promises continued efforts towards transparent price discovery, linking farmers with remunerative markets, and integrating domestic markets. Provision has been made to expand the e-National Agricultural Market (e-NAM), implementing it in 585 markets and helping farmers to decide their selling destinations to get remunerative prices. However, there is a need for institutional arrangements so that marginal and small farmers participate in e-NAM, as they have tiny marketable surpluses.
Similarly, incentives will be given to the states for de-notifying perishable commodities from the APMC Act, helping farmers to sell their produce at remunerative prices. It is also informed that the Government is working to develop a model law for contract farming, which will ensure procurement and remunerative prices. Institutionalizing contract farming will revolutionize the agri-marketing system as it has been witnessed in many South-east Asian countries. However, it is worth observing the outcomes on how the front-end, especially organized retail, agro-processing and agri-export sectors will unfold under positive provisions. Offering incentives to the front-end would have made an interesting mark. Undoubtedly, food processing is a rising sector. There are losses to the tune of 20-40 percent in the entire supply chain of various agri-food commodities. These losses are much higher during the peak supply of perishable commodities. Also, as a consequence of growing incomes, changing tastes and preferences of the population, the demand for processed food is increasing. Foreign Direct Investment is further liberalized and the provisions of business are eased. Extracting from the best global practices and technologies in food processing and retailing will strengthen the processing sector, reduce the losses of perishable commodities and add value to increase farmers’ income, when linked with industry, while also generating employment for the rural youth.
Programs such as ‘Start Up’, ‘Make in India’, ‘Stand-Up India’ and ‘Digital India’ are immensely relevant to the agricultural sector as they will benefit youth and women entrepreneurs, and provide access to knowledge and escalate financial transactions. Strengthening MUDRA Bank will benefit MSMEs. Additional incentives to the Start-up entrepreneurs, who are engaged in making applications and implementing them for the welfare of the agricultural sector, would have engaged them more in agriculture sector. During his address at the Indian National Science Congress-2017, the Hon’ble Prime Minister emphasized on how ‘disruptive technologies’ are changing the landscape of various kinds of services and transactions, easing the lives of common man, largely in urban areas, but not yetimpacting the agricultural sector. Promoting ‘disruptive technologies’ in agriculture, especially for financial transactions, inputs and service delivery, marketing and subsidy transfer, will reduce transaction costs and improve efficiency in the agricultural sector.
Besides, other programs such as rural roads, national highways, port, education and skill development, health care, and electrification will directly benefit farmers and rural population.
Overall, the budget is substantially pro-farmer and aims to uplift Indian agriculture to a distinct status. It is an attempt to strengthen agriculture as a sector and occupation, and a step forward to double the income of farmers by 2020.