Higher spending for creating agricultural infrastructure, including storage facilities, and putting more money in the hands of people in rural parts of the country to boost demand are some major challenges before Finance Minister Nirmala Sitharaman, who will present her second Union Budget on February 1.

The agriculture sector is currently passing through a crisis situation. Production levels remain high, but the domestic demand is not picking up. There was a whopping 16 per cent drop in the export of agricultural produce in the first seven months of the current financial year as compared to the corresponding period in the previous year. But it is ironical that despite all this, food prices remain high.

Crop insurance claims

During the monsoon season last year, many major agriculturally-important States experienced severe floods leading to heavy crop losses in Kharif season. This resulted in an increase in crop insurance claims in these States. If the payout rates are high, there is a possibility of premium rates going up, forcing the governments — both the Centre as well as States — which highly subsidise the Pradhan Mantri Fasal Bima Yojana (PMFBY) to cough up more. Last year, the budgetary allocation for PMFBY was ₹14,000 crore.

One of the major announcements made by the Finance Minister in her Budget speech in July last year was the creation of 10,000 farmer producer organisations (FPOs) over a period of five years. Even though several months have passed since then, the proposal to set up these has not yet been approved by the Union Cabinet.

Similarly, it will be interesting to see if the government will increase the quantum of input subsidy given to farmers under the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan), which was launched just before the general elections. There is a general grouse that the sum of ₹6,000 given out as input subsidy is awfully inadequate, even though the scheme has not been able to reach all Indian farmers yet. Only 9 crore farmers, out of 14.5 crore farmers in the country, have so far benefited from the scheme.

Rural potential

With the present socio-demographic mix, the country’s economic transformation will continue to be led by a rising middle class and the untapped rural potential. With consumer players having witnessed major sales from rural areas in the last few years, growth has been mainly driven by change in aspirations and increasing awareness about brands. “Keeping this in mind, we could anticipate the Budget to focus on increasing realisations in the hands of farmers coupled with rural investments in infrastructure to spur consumption... There is no doubt that in the desire to drive rapid financial and digital inclusion, the rural segment will play an integral role,” said Harsha Razdan, Partner and Head - Consumer Markets and Internet Business, KPMG in India, on what is anticipated for rural India in the forthcoming Budget.

Agri-infrastructure

There is an increasing demand from many quarters to increase investment in agricultural infrastructure. The Confederation of Indian Industry (CII), for instance, in its pre-Budget recommendations to the Finance Minister, called for augmenting public investment in agri-infrastructure such as irrigation, seeds cold storage for increasing farm productivity in the country. India is among those countries where irrigation efficiency — particularly that of major projects — is at its worst. For instance, the irrigation efficiency of large and medium projects in the country is only 38 per cent currently, which can easily be enhanced to 60 per cent by regular maintenance of irrigation infrastructure. There is a need to focus more on agri exports. The CII, for instance, urged the government to earmark funds in for logistic parks for perishables, dedicated areas at ports and railways for movement of perishables and new greenfield airports for cargo purposes.

“Berths for perishables should be created at sea ports and the railways should make available reefer wagons. Quarantine areas should be created at all relevant airports. Airports should also have efficient cargo perishable centres,” it said.

Anomalies in GST

Industry has also been urging the government to correct some anomalies in GST relating to warehouses management. According to Siraj Chaudhry, MD and CEO of National Collateral Management Services Limited (NCML), storage services for agri produce are at present exempt from GST. However, all input activities for providing storage services — such as leasing warehouses, fumigation, maintenance works, weighment, testing, security services etc — incur GST.

“As there is no GST on the storage services, there is no input tax credit (ITC) available for storage companies. This has resulted in making storage services costly which was not the spirit of exemption. It is, therefore, proposed that all agri produce storage services should uniformly have 5 per cent GST. This will ensure GST compliance and reduce storage costs for all stakeholders, including farmers,” Chaudhry said.

Similarly, the Agriculture Ministry’s Gramin Bhandaran Yojana does not provide capital subsidy for silos. Hence, there is no incentive for the private sector to build modern storage infrastructure. There is need to extend 15 per cent of the capital investment as subsidy to give a fillip to private silo infrastructure in the private sector, he said.

The Budget may also have to find a better way to make fertiliser subsidy payments to fertiliser firms. Even though the government has introduced direct benefit transfer in the fertiliser sector , the firms have not benefitted from it. The firms complain that earlier the delay in payment to the fertiliser companies used to be 45 days. But since the introduction of the DBT scheme, the payments were delayed by 6 to 8 months, increasing the interest cost on working capital for most firms, Fertiliser Association of India has argued.

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