What can the Budget do for agriculture?

Madan Sabnavis | Updated on January 25, 2018 Published on January 25, 2018

Harvesting hopes Of a better deal   -  Prashanth Vishwanathan

The issues are specific and relate to pre- and post-harvest expectations and concerns, calling for holistic solutions

Agriculture has always occupied the headlines as it is a sensitive sector. When specific crops fail or the monsoon is unfavourable, there is a tendency for farmers to be under pressure and this leads to issues like fall in income, indebtedness, suicides and loan waivers.

When the crop is excessive, prices fall sharply, resulting in lower income for farmers. This leads to a different set of problems of distress and invariably there is talk of increasing minimum support prices (MSP). As a rule, all governments emphasise the concerns of farmers before a budget and it is not surprising that there are several expectations that have been built around this issue.

Practically speaking, it must be understood that agriculture is a State subject and while the Centre can build the superstructure, the infrastructure has to be developed by States. More importantly, these measures work only in the medium- to long-run provided they are sustained over a period of time. If this is accepted, then the role of the Union Budget can be looked at realistically from two aspects of agriculture: pre-harvest and post-harvest.

Perspective on harvests

The pre-harvest issues for farmers involve procurement of inputs, irrigation, credit and insurance. These functions have been traditionally provided by the ‘adathiya’, which is being replaced gradually by the formal system. The Centre, on its part, has chipped in directly by setting targets for farm credit, which is largely adhered to by banks which by statute have to lend 18 per cent of total loans to agriculture. The Pradhan Mantri Fasal Bima Yojana puts a cap on the maximum premium to be paid as a percentage of sum insured between 1.5 and 5 per cent, and lays down the compensation norms in case of failure.

The challenge here is to educate the farmers and also ensure that when there is a crop failure, the compensation is immediate and seamless. The indirect benefit is through the fertiliser subsidy, which, though being targeted better, has an unpaid bill exceeding ₹1 lakh crore. Provision of funds for irrigation is largely a State initiative or a shared responsibility where the Centre plays the secondary role.

On the post-harvest front, the route is longer. Transport, storage and sale are the direct links that have to be built. This takes time as it involves other sectors and organisations as well as regulators (WRDA for storage, APMCs for marketing).

Budgets can make some allocation for encouraging specific activities but cannot singularly solve them. Even eNAM (electronic national market) requires coordination with States and APMCs. Further, while eNAM is a superb concept, practically speaking it is vibrant only on paper. Farmers need to be aware of such markets and should have access to warehouses to enable delivery. As warehousing is not all-pervasive, most farmers would be out of the frame. Further, once they reach the warehouse, they should be able to deposit the goods and have them assayed independently. Lastly, they should be able to take decisions on the price as there would be several grades being sold and the best price available has to match their price.

While electronic markets usher in transparency among existing players in mandis, getting farmers to sidestep the adathiya would require a lot of effort, which is not in the domain of the Centre.

Raising MSP

There is talk about MSPs being increased. While this is a practice twice a year just at the time of sowing the kharif or rabi crops, the experience so far is that generally market prices are higher and hence MSP becomes a benchmark price for the market. Such calls are not taken in the Union Budget. 2017 has been exceptional year where prices went well below MSP for specific crops such as cotton and soybean.

More importantly, active procurement takes place only in rice and wheat, which are linked to PDS. There was procurement of tur last year due to overproduction. However, the problem is that the Government has to create the machinery which includes not just the systems but also storage facilities. This calls for some allocations in the Budget, though admittedly it would be a medium-term exercise.

At present, the approach is more knee-jerk, where surpluses are absorbed for a single year and then abandoned when production is back to normal. It happened for sugar earlier and tur this year. A clear plan on procurement is something that can be mooted by the Centre which has to be in partnership with the States.

A subject which falls within the realm of the Union Budget is the NREGA programme, which is implemented through the States. This is a critical programme which provides employment to farmers especially between two farming seasons and also doubles up when there is crop failure. The focus so far has been on allocations, and has run fairly well as the wage paid becomes the standard in industry.

There has been some criticism on the unproductive work assigned under this scheme, which is valid. Ideally, if ministries work in unison such labour can be paid the NREGA wage to work on constructive projects which can be linked to other plans of ministries such as roads, railways, urban affairs and so on.

What about waivers?

There is a question mark on whether the Budget would tread the road of waivers for farmers. There is already an interest rate subvention cost which is taken on by the Government. The Centre has clearly passed on the onus of waivers to the States within the space afforded by their fiscal balances. It will be interesting to see if there is a change of stance given the deep nature of this problem.

Hence, specific allocations are unlikely to increase significantly. It would help if a thumbs up is given to futures trading in a wider basket of farm products as it will provide price protection for farmers, which has worked well for contracts of chana, soybean and soy oil on NCDEX. This would be a positive for the farming community.

The writer is the chief eonomist at CARE Ratings. The views are personal

Published on January 25, 2018

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