India’s budget could be agri focused on slow monsoon and looming state elections

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IAC photo by Parivartan Sharma

By Biman Mukherjee

Delayed monsoon rains that have worsened fears of rural distress in India and upcoming elections in key states might tempt the government to offer many welfare programs for farmers in the upcoming national budget on Friday.

But their cause will be better served by strengthening a creaking agriculture supply chain, say experts.

That would require policies not only for boosting crop productivity, but also post-harvest needs including storage, transport and connectivity to markets, said Ajay Kakra, food and agriculture leader at PwC India.

While much of the emphasis of agriculture policy has been traditionally focused on boosting crop productivity through research on high-yielding varieties, commercialization of the work done by institutes have often lagged behind.

“That’s why in most crops our yields are 40%-50% lower than globally,” Kakra said, adding that government policies must focus on greater commercialization.

Another easy way to boost crop yields would be to solidify an irrigation program under the Prime Minister Kisan Sinchayee initiative, he added. Only 47% of India’s farm lands are irrigated, though productivity doubles for a piece of land with ready water supply.

The farm policy also needs to shift more towards marketing and supply of produce like vegetables and fruits, which perish more quickly than grains which the Indian farm network is essentially geared for, says Sunil Sinha, principal economist at India Ratings.

The current agrarian distress is being worsened by such policies that are essentially aimed at food security, though the country now is grain surplus  rather than deficit seen some 40 or 50 years ago, Sinha highlighted.

“We have got bits and pieces of the supply chain, but there is no integration,” he said. “ Unless we have it, the farmer is not going to produce much of the other agriculture goods that add value.”

Currently, farmers have to rely on a chain of middlemen and intermediaries to sell, which means they may earn only about 15% of the final sale price of their produce like vegetables.

That also reduces incentives for greater diversification of agricultural production aimed at exports, which can easily double or triple their incomes.

The concerns over rural distress would likely mean the  budget will be a holistic package of welfare programs such as income support through direct employment, while at the same time provide for better pricing and marketing, as well as productivity, says Sujan Hajra, chief economist at Anand Rathi Securities.

As such, he expects the total allocation to agriculture and rural development to be increased by 350 billion rupees in the final budget from about 3 trillion rupees.

Higher agriculture spending is likely to contribute to widening the fiscal deficit to around 3.8% of the GDP, said Hajra.

But given the current economic situation where growth is slow, employment is soft and there is rural distress, “some level of fiscal deficit is welcome,” he said.

Some economists, however, doubt whether there is much fiscal room for the government to offer meaningful support to agriculture.

“This budget already has a major challenge of balancing revenues,” said Madan Sabnavis, chief economist at CARE Ratings.

While the budget may have “lofty language” for the agriculture sector, he doubted whether meaningful allocations that can improve growth care likely to be provided.

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