Budget 2021

Transitioning agriculture and MSMEs

Rajeev Chandrashekhar | Updated on February 01, 2018

Future captains Of industry, medium and small

The focus is not merely on improved financials, but also on efficient execution of programmes

The Narendra Modi government took office on the back of an economy that was in tatters — a broken banking system due to NPAs, and shattered investor confidence due to corruption, scams and years of profligate spending. There were 12 quarters of successive GDP decline, 24 quarters of rising inflation, a record CAD of $400 billion, gross capital formation falling below 30 per cent, and so on.

Today, the GDP has grown, per capita income has increased, FDI flows have steadily increased with 2016-17 clocking a record high of $60.08 billion, foreign exchange reserves are at a record level of almost $410 billion, inflation has moderated and government finances are following a roadmap of fiscal discipline. Crony capitalism and piggy-banking on PSBs have come to an end, a battle against corruption is under way, ease of making investments and doing business has increased, and medium- to long-term investor confidence is high. The World Bank has stated that private investments in India are expected to grow by 8.8 per cent in FY2018-19 to overtake private consumption growth of 7.4 per cent, and thereby drive the growth in India’sGDP in FY2018-19.

The economy has travelled far from those bleak dark days of 2014. Apart from the issue of NPAs, most of the problems inherited in 2014 have been addressed and the economy has further been structurally changed with demonetisation and GST. Although these reforms have come in for criticism, they mark necessary changes for long-term, sustainable, high growth.

Budget 2018 has many aspects, but I will focus on two issues that deal with the transition support to two important sectors — agriculture and MSMEs. They account for a large part of jobs and opportunities in India.

Focus on agriculture

Even after seven decades of Independence, agriculture remains in the news for farmer suicides and distress, caused by years of apathetic policymaking. This government has promised a complete restructuring of the agriculture sector and the farming economy.

The Prime Minister has set in motion a series of structural changes to the agriculture sector to transform it into a viable enterprise and financially empower farmers. Long-term initiatives like electronic national agriculture market (e-NAM), renewed focus on irrigation through the Pradhan Mantri Krishi Sinchayee Yojana, emphasis on health of the soil through the Soil Health Card scheme, neem-coating of urea, a farmer-friendly crop insurance scheme PMFBY are all meant to realise the goal of doubling farmers’ income by 2022.

But it was clear there was need for transition support before farmers could truly gain from an open, disintermediated market. This had come through higher MSPs, a big relief in the short term. Allocation of ₹1,400 crore for the food-processing industry, ₹200 crore for agricultural markets, the announcement of Operation Green to ensure year-round production of onions, tomatoes and potatoes, and extending kisaan credit card benefits to fisherfolk will boost the rural economy and help consumers.

More for MSMEs

The MSME sector is a labour-intensive job creator. It is a critical part of our legacy economic model and forms part of the critical supply chain for products and services. The share of the sector in the country’s Gross Value Added (GVA) is approximately 32 per cent; MSMEs play a crucial role in providing large-scale employment and in the industrialisation of rural and backward areas. According to the National Sample Survey (NSS) 73rd round, for the period 2015-16, there were 633.8 lakh unincorporated non-agriculture MSMEs in the country engaged in different economic activities providing employment to 11.10 crore workers.

MSMEs account for 17.4 per cent of total NPAs today. They have been caught in the pincer effect of the NPA crisis and transition impacts of demonetisation. I have been urging the Government to create a one-time restructuring window for MSMEs with their NPAs and boost transition support to MSMEs. The finance minister has promised relief on the issue of NPAs for MSMEs. The allocation of ₹3,794 crore for credit support to MSMEs is welcome. Reduced income tax rates of 25 per cent to MSMEs with a new threshold of ₹250 crore is also a welcome step. Further, the finance minister has responded to my request to give some relief to the cashew sector by reducing customs duty on cashew to 2.5 per cent from the current 5 per cent.

On the informal front

As far as the informal sector is concerned, the process of formalisation has rapidly started with MUDRA and demonetisation. Since its launch in April 2015, MUDRA Yojana has led to a sanction of ₹4.6 lakh crore in credit to 10.38 lakh MUDRA loans. It is also a great initiative towards financial inclusion and equitable development, as 76 per cent of the loan accounts are of women and more than 50 per cent belong to scheduled caste, scheduled tribe and OBC groups.

Hence, the budget is correct in focusing on accelerating the formalisation by further expanding the reach of MUDRA by allocating ₹3 lakh crore, a nearly 20 per cent rise from last year’s allocation of ₹2.44 lakh crore.

Of course, the issue of NPAs continues to plague our economy; it is one I wish the Government had started addressing in 2014 as many of us had urged. That remains a solution down the road with the recapitalisation of banks under way.

And so, apart from these three critical issues that needed intervention and transition support — which the budget has delivered — there is a clear continuation on the roadmap that commenced in 2014, of transformation into a more competitive, efficient and clean economy that would grow at higher rates. The focus on the poor and rural Indian remains steadfast — using not just higher financial allocations but also a more determined emphasis on execution and integrity. Many solid reforms can now be planned to further boost growth and prosperity in the coming years.

The writer is a Rajya Sabha MP

Published on February 01, 2018

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