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Budget and Agriculture

  • Category
    Economy
  • Published
    16th Feb, 2022

Context

Recently, the finance minister presented the Union Budget 2022-23 in Parliament. We shall be taking up the analysis of the budgetary allocations in the agriculture sector in the following discussion.

Analysis

  • Agriculture is a diverse subject that is compressed into a sub-section of the regular budgets of the Centre and States.
  • The Union budgetary allocation for agriculture has risen marginally but schemes for crop insurance, MSP have seen a dip in funds in this budget.
  • Limited focus on the agriculture sector and related policies can be seen in the Union Budget 2022-23.

Budgetary allocation for Farm Sector:

  • The overall allocation increased by a meagre 4.4 per cent for the year, compared to the expenditure on the sector in the last financial year. There was a marginal increase of Rs 5,700 crores, from Rs 126807 crore in the financial year (FY) 2021-22 to about 132513 crores in FY 2022-23.
  • The worrying part is that even the important schemes for crop insurance and minimum support price (MSP), especially for pulses and oilseeds saw a drastic slashing of funds.
  • The Market Intervention Scheme and Price Support Scheme (MIS-PSS) was allocated Rs 1,500 crore, 62 per cent less than Rs 3,959.61 crore in revised estimates (RE) of FY 2021-22.
  • The Pradhan Mantri-Annadata Aya Sanrakshan Abhiyan (PM-AASHA) saw an even deeper cut. It was allocated just Rs 1 crore for the year as against an expenditure of Rs 400 crore in 2021-22. This is almost a 100 percent reduction.

Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA) is an umbrella scheme aimed at ensuring remunerative prices to the farmers for their produce. Components of PM-AASHA:

  1. Price Support Scheme (PSS)
  2. Price Deficiency Payment Scheme (PDPS)
  3. Pilot of Private Procurement & Stockist Scheme (PPPS)
  • Both PM-AASHA and MIS-PSS ensure MSP operations in the country. This reduction in allocation is contrary to the demands for MSP by the farmers, especially in the just concluded farmers agitation for the three farm laws relating to marketing reforms and stocking of essential commodities. There can be two reasons for this reduction:
    1. Either the government is anticipating that prices of pulses and oilseeds will remain expensive (due to the ongoing food inflation) in 2022-23 and will not be sold at MSP, or
    2. The government is looking to wind up the scheme- an indication that is not faring well, given the government has been saying that it will procure under MSP and talking about nutrition security.
  • Even the allocation under food and nutritional security has come down to Rs 1,395 crore from Rs 1,540 crore in RE 2021-22. The ‘Distribution of Pulses to state / Union territories for Welfare Schemes’ that aims to dispose of pulses procured for utilisation under midday meals, public distribution system, among others, saw an allocation of just Rs 9 crore.

Silence on doubling of Farmers income:

  • This year the doubling of farmer’s income was supposed to have happened.
  • But the budget 2022-23 maintains complete silence on that target or on how much we have achieved in the last six years since that promise was first made.
  • But it was the first time in six years that the budget speech skipped mentioning ‘doubling of farmer’s income’ altogether.
  • According to the government’s statistics, the monthly income of farmers in 2015-16 was Rs 8,059. Now according to the 2021 Situation Assessment Survey of agricultural households, a farming household’s monthly income was Rs 10,218, which is quite far from the target announced for 2022.
  • And the silence on this issue in this year's budget seems to suggest that the government might have missed the target.

Crop Insurance Schemes:

  • Crop insurance is particularly important because of adverse weather from climate change and this too has seen a reduction.
  • Allocation for Pradhan Mantri Fasal Bima Yojana (PMFBY) or crop insurance scheme was also reduced marginally to Rs 15,500 crore for this year from Rs 15,989 crore in 2021-22. This is significant at a time when crop loss has been increasing.
  • Schemes like Agriculture Infrastructure Fund or AIF has seen a marginal increase from Rs 200 crores in 2021-22 (RE) to Rs 500 crore in 2022-23. However, this AIF which was announced as a Rs 1 lakh crore fund in 2020 as part of the government’s Atmanirbhar Bharat Abhiyan was meant to be spent over the subsequent six years has been a non-starter.
  • Only Rs 6,627 crore worth of projects have been sanctioned until now after two years and the actual disbursals are much lower at only Rs 2,654 crore.
  • This is about 2.6 per cent only of the target (one lakh crore), which is indicative of poor implementation of the scheme.

Decrease in Capital Investment:

  • Allocation for rural development was 5.59% in the previous Budget and it has been reduced to 5.23%. The allocation of funds towards schemes such as Pradhan Mantri Kisan Samman Nidhi (PM KISAN), Pradhan Mantri Kisan Maandhan Yojana, though desirable, will not result in long-run asset generation.
  • Most of them are poor farmers with small landholding sizes. They cannot invest in irrigation techniques in a country where seasonal rains through the monsoon fail regularly.
  • They cannot invest in required agri-technology and scientific methods to increase their per unit crop yield.

The Bright Spots in the Agriculture Budget:

  • One bright spot in the agriculture budget is the focus on the Rashtriya Krishi Vikas Yojana (RKVY) that has been losing its sheen in the last few years. The programme has been restructured to include schemes like:
  • Pradhan Mantri Krishi Sinchai Yojna-Per Drop More Crop
  • Paramparagat Krishi Vikas Yojna
  • National Project on Soil and Health Fertility
  • Rainfed Area Development and Climate Change
  • Sub-Mission on Agriculture Mechanization including Management of Crop Residue
  • These schemes were earlier a part of the Green Revolution programme. Allocation under PM-KISAN, which provides income support by way of the cash benefit to all landholding farmers, has also increased marginally to Rs 68,000 crore from Rs 67,500 crore last year. Overall, the farm sector has very little cheer in this year's Union Budget.
  • Digital and hi-tech services to farmers: While countries like Israel, Vietnam, China etc., have been spraying pesticides in a regulated manner through sprayers from the sky, Indian farmers to a large degree are spraying them manually. Initiatives like promoting the use of ‘Kisan drones’ to crop assessment, digitisation of land records, spraying of insecticides and nutrients through the public-private partnership model will go a long way in helping Indian farmers reap the benefits of technological advancements.
  • Promoting chemical-free natural farming starting with farmers' lands close to the Ganga.
  • Post-Harvest value addition, consumption and branding of millet products, funds to finance start-ups for agriculture and rural enterprises, supporting FPOs through these enterprises, and boosting domestic oilseed production, have the potential to transform the sector.
  • Implementation of the Ken-Betwa River interlinking project is the other thrust area of the Budget for the farm sector.

Need for Increased spending to Boost Farm Incomes:

  • Although the overall budgetary allocation towards the agricultural sector has marginally increased by 4.4% in the Union Budget 2022-23, the rate of increase is lower than the current inflation rate of 5.5%-6%. The picture changes and rather looks disappointing when we look at the Agriculture Orientation Index (AOI)- an index that was developed as part of Goal 2 (Zero Hunger) of the 2030 Agenda for Sustainable Development in 2015.

The Agriculture Orientation Index (AOI) is calculated by dividing the agriculture share of government expenditure by the agriculture value-added share of GDP. In other words, it measures the ratio between government spending towards the agricultural sector and the sector’s contribution to GDP.

  • The Sustainable Development Goal (SDG) 2 emphasises an increase in investment in rural infrastructure, agricultural research and extension services, development of technology to enhance agricultural productivity and eradication of poverty in middle- and lower-income countries. India’s index is one of the lowest, reflecting that the spending towards the agricultural sector is not commensurate with the sector’s contribution towards GDP.
  • India holds only the 38th rank in the world, despite being an agrarian economy wherein a huge population is dependent on the agricultural sector for its livelihood, and despite being among the largest producers of several crops produced and consumed in the world. India’s poor AOI is a stark reminder of the need to attain a key sustainable development goal of higher agri-growth.

Steps that can be taken for the Improvement of Agricultural Sector:

  • Engaging Universities in Agriculture, Animal Husbandry and Horticulture and NABARD to prepare a profile of the State in terms of soil, climate changes, emerging technologies and the pitfalls or inadequacies of the present system.
  • Reduction in the GST and customs duty rates on some of the agro-chemical products could have reduced the overall cost for the farmers increasing their income.
  • The budget should contain only those resources that flow from the governments and not from the credit institutions. The budget for agriculture should not include the crop loan targets as it will be misleading.
  • Irrigated farming and rain-fed farming should be separate components as much as livestock, horticulture, apiculture, and aquaculture.
  • In the high-income zones of the farm sector, we see the adoption of robots, artificial intelligence and machine learning. Possibilities of introducing agricultural income tax may be considered.
  • The perverse subsidies in the farm sector, like for fertilisers, could be considered to be scrapped.
  • Balancing the food system with the environment and renewable or alternative energy systems are essential to building a resilient food production system.
  • When States formulate a budget for agriculture, there is scope for the right balance between the resources and expenditures consistent with their respective agro-climatic zones.

Conclusion:

Intensification in government spending towards the agricultural sector is the key to attaining higher agricultural growth and farm income. The focus on the development of irrigation facilities, urban infrastructure and development of national highways must be complemented with an emphasis on the development of rural infrastructure and rural transportation facilities, along with an increase in the number of markets. Such measures can play a crucial role in enhancing farmers’ access to markets and integrating small and marginal farmers into the agricultural supply chain.

During the last five years, the Budget allocation to agriculture has seen positive shifts consistent with the Centre’s role in research, marketing, exports, and agricultural education. This year too the basket has a lot to cheer about, and at the same time leaving areas for improvement.

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