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As India emerges out of the Covid-19 pandemic, there was a lot of anticipation about what the Finance Minister would have to offer to the agriculture sector in terms of stimulus and sops. Unfortunately, for those who were expecting Big Bang announcements, there were none. It is heartening that the Finance Minister was not carried away by political rhetoric.
The ₹1 lakh crore Agri Infrastructure Fund announced in May 2020 as part of the Atmanirbhar Bharat Abhiyan was a very timely and appropriate initiative, and getting it implemented with full vigour will go a long way in strengthening farm gate infrastructure and at Primary Collection Centres. This will provide the much-needed stimulus to term lending for capital formation in agriculture, an area much neglected, as most of the bank finance to agriculture veered towards short term finance since the introduction of Kisan Credit Card (KCC). As per the Economic Survey, only ₹3,226 crore has so far been sanctioned under this facility, a major part of which is funnelled through NABARD to Primary Agricultural Cooperative Societies.
Another highlight of the FMs speech was the data presented on payments made to farmers under MSP.
MSP payments to farmers
Source: FM’s speech 1 Feb 2021
While successfully making a political point that the current government is no less committed to the welfare of farmers, these numbers clearly present an unaddressed problem that the government has to tackle head-on soon.
The MSP system was designed to provide a safety net in case the prices crashed, to procure for supply under the Public Distribution System, and maintain buffer stocks. Today, sale to government agencies at MSP seems to be the preferred choice of farmers. It indicates that either MSPs need rationalisation or the markets are not working for the benefit of the farmers. In another sense, production is exceeding what the market can absorb. How these commodity mountains are being managed, what is the holding cost, and how will they be managed if the year-on-year procurement keeps growing are questions that beg answers. The matter needs a fix, to which the government cannot remain indifferent for much longer.
The announcement of an increase in the Rural Infrastructure Development Fund (RIDF) allocation from ₹30,000 crore to ₹40,000 crore is also not something to gloat about. The corpus of RIDF flows out of the shortfalls in priority sector lending by commercial banks. Its high time commercial banks perform their primary role of lending and not use the short-cut of depositing shortfalls in priority sector lending to agriculture, or the priority sector targets need be rationalised. The low yield that the RIDF deposits earn ultimately impact the income of banks and thereby the ability to pay better rates to their depositors, a penalty on the depositor for banks in not playing their role.
Overall, the Finance Minister has been prudent and left the existing schemes continue without any tinkering, which is good for a sector that has shown the ability to stay vibrant and has fuelled growth of the economy even as the other sectors were impacted by the Covid-19 pandemic.
Emmanuel Murray is Senior Advisor, Caspian Investments
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