This Budget, one of the loudest calls for attention should be from the agricultural sector, which has been in deep distress for some time. Mega farm loan waivers and increased subsidy spends on food and fertilisers may not be the answers to this knotty problem. A more focused approach to tackle farm distress could work around improved irrigation, a more workable system to assess crop damages and a linked crop insurance scheme besides persuading farming households to diversify risks through increased non-farming incomes.
The 2015-16 budget had expanded the agriculture sector allocation by over 15% to Rs 9,89,999 crore from Rs 8,59,556 crore in the previous fiscal but this has not really helped farmers deal with bad monsoons, unseasonal rains and other sectoral problems besides the erratic agriculture growth.
Two consecutive monsoon shocks, a restrained increase in the minimum support price for key crops, depressed global food prices (which hurt agri exports) and overall deteriorating farm economics should give the budget makers enough reason to worry. There are enough indications this will be an out-and-out farmers' budget but what remains to be seen is what measures the Finance Minister actually announces to mitigate the stress of a sector which accounts for roughly a fifth of India's GDP.
According to government’s own latest data, growth in GVA (gross value addition) in ‘agriculture, forestry and fishing’ sector is expected to be just 1.1 per cent during 2015-16 against the previous year’s (-) 0.2 per cent. The production of food grains is expected to decline by 0.5 per cent and of oilseeds by 4.1 per cent in this fiscal. Production of fruits and vegetables, a segment which accounts for almost a third of GDP in ‘agriculture, forestry and fishing’ segment, is expected to increase by a mere 0.6 per cent. The Economic Survey of 2015 had pegged overall agricultural growth in 2014-15 at 1.1%, which was a just third of the growth seen in the immediate previous fiscal.
CRISIL Research's economists Dharmakirti Joshi and Dipti Deshpande say the budget needs to outline measures to restore the health of the rural economy without increasing unproductive subsidy spend. This view is echoed by Ashok Gulati, chair professor for agriculture at ICRIER, who says food and fertiliser subsidies should be rationalised and the money thus saved should be used for more important things like irrigation schemes.
Joshi and Deshpande say one pillar of agricultural support should be encouraging production by making agriculture profitable - as of now, profitability at the farm is declining as cost of inputs continues to soar. "Pulses are one such crop where such disparities are high and rising. Within pulses, the largest disparity between cost of cultivation and output prices is in urad, gram and tur. In urad, while output prices in the last decade have risen by 12%, cost of cultivation in major producer-states has risen in the range of 12-26%. Similarly, in gram and tur, output prices grew about 10% but cost of cultivation rose 12-18%. The BJP had, in its 2014 general elections manifesto, announced its intention to take steps to enhance profitability in agriculture by ensuring a minimum 50% profit over the cost of cultivation."
This will require ensuring availability of high variety seeds at reasonable costs, reducing cost of transportation, effective market pricing of agricultural produce, drought-proofing the sector on by expanding irrigation cover and introducing latest technologies for farming. Ajay Kakra of PwC says 90-100% of incomes of India's farming households come from farming. The government should help these households diversify risks by encouraging non-farm sources of income. "The Government should look at more constructive ways of enabling the farm sector apart from loan waivers".
Gulati points out here that during the UPA government years most principal crops had profit margins of between 20 to 30 per cent. "But the reality of the first two NDA years turned out to be nightmarish for farmers, with profits plunging to less than 5 per cent for most crops".
The CRISIL economists have listed out areas where the budget needs to focus to get the farm sector going this fiscal. These include expanding the irrigation cover, a comprehensive crop insurance scheme, prioritising farm investment over farm subsidy and extending the direct benefit transfer scheme to food and fertiliser subsidy schemes.
Gulati says agriculture must register at least half the rate of overall GDP growth in the economy. "From that angle, targets of 8 per cent of overall GDP growth and 4 per cent for agriculture are fine and on conceptually robust ground. But the actual performance has always lagged a bit, and more so for agriculture, except in the 11th Five-Year Plan (FY08 to FY12), when agri GDP also grew at 4.1 per cent. The result of this high growth in agriculture was that poverty declined three times faster during 2004-11 than during 1993-2004." That’s a sobering thought ahead of the budget for the FM, who knows better than most that for India to shine, Bharat has to deliver.