Indian Budget 2016-17: Expert View – Agriculture

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Arun Urs

Arun Urs

Stepping into third year of administration, the focus of Narendra Modi-led government has turned towards addressing the growing stress in agrarian India. The unprecedented consecutive monsoon failures in the last two years along with collapse of global commodity prices has severely affected rural economy.

Employment guarantee, rural roads, irrigation, crop insurance and interest subvention on short-term crop loans have got maximum attention from the government. Along with these, there are several incremental steps to bolster farm productivity and secure rural incomes. However the government has shied away from taking bold steps to set right the many wrongs in the near term.

Irrigation has been the Achilles heal of Indian agriculture. Out of 141 million hectares of net cultivated area in the country, only 46 percent is covered with irrigation. To bring more area under irrigation, the government has set aside about Rs 7,400 crore to fast track 23 of the 89 languishing irrigation projects this year. Apart from this, the government plans to create at least 5 lakh farm ponds and dug wells in rain fed areas through rural employment gaurauntee scheme. Such a target seems bit far fetched as use of machines are not permitted under the job scheme.

For the fiscal year 2016-17, the government has set a target of Rs 9 lakh crore farm loan disbursal and has set aside Rs 15,000 crore on interest subvention, an increase of 2,000 crore from last year. Short-term crop loans of up to Rs 300,000 are priced at annual interest of 7 percent and if repaid within 360 days, the government provides another 3 percent interest relief. The Reserve Bank of India has flagged this scheme as it suspected diversion of funds by large landholders.

In an overenthusiastic hurry to cool inflation, there was minimal increase in minimum support price (MSP) offered by this government in the last two years. Ignoring the metrological department’s advisory on deficit monsoon last year, the increase in MSP for almost all grains and cereals never exceeded 5 percent. While it was successful in cooling retail inflation, the policy severely affected farm incomes as input costs have continued their upward movement. While there has been explicit guarantee in the budget to re-look at the current procurement pricing policy, one hopes that the government will be more generous going forward.

To integrate state agriculture markets into one nationwide market, the government will be launching an e-auction platform on April 15. Initially markets in 12 states would be brought into the platform and more states are expected join once they amend their respective APMC Acts. In many states, the APMC Act prevents traders from other markets to participate in auctions. This had led to trader cartels that rigged auctions and worked for their own benefits. The e-auction model has been working well in Karnataka from the past two years, and if implemented well, e-auction will break the stranglehold of local traders and competition among traders will lead to better price discovery.

The government has thrown open the back-end supply chain of farm produce to 100% FDI through FIPB route. It is doubtful whether there would be fresh investment coming into creating packinghouses, processing industries and cold storage facilities as retail in the country is not yet organized. It will probably take many more years for domestic players to attain scale that requires sophisticated supply chain. One of the world’s largest banana companies, Dole, has been operating out of Bengaluru in a very limited way as Tata’s Star Bazar is their only major retail client. Nevertheless, this incremental step is a major indicator that opening of retail sector to foreign companies is imminent.

The better news for farming will probably come from the skies this year. The latest El Nino update from Australian metrological bureau estimates that Pacific sea surface temperatures will return to normal conditions by second half of this year. This will probably result in a slow start to monsoon, but will eventually yield normal to above normal rains for the country. For the sake of our farmers’ welfare, one certainly hopes that a dying El Nino will not give way to a La Nina.

(Aruna Urs is a Resident Farmer @ The Takshashila Institution, an independent non-partisan think-tank based out of Bangalore)

 

 

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