Finance minister Arun Jaitley and his team are starting the pre-budget consultations with various stakeholders for Budget FY17. Generally, it starts with agriculture, which is slated for January 4 this time. It is good practice and courteous to invite various farm experts and farmers’ representatives. Often, one finds these meetings full of anguish from farmers’ side, while sometimes very sanguine suggestions also come from farm experts. But not more than even 5% of these suggestions are ever seen in the budget. Would this year be different? Only time will tell.
What are the key issues in the farm sector today and what can the FM and his team do in a year’s time from now? One brief note—which, it is hoped, the FM will heed—is that farmers are under severe stress, with profitability in the sector falling alarmingly. The BJP election manifesto had promised to raise profitability levels in agriculture to 50% above cost, when they were hovering around 20-30% in most crops during the terminal years of UPA. But the reality now is that the profitability has plummeted to less than 5% in major crops, and to negative margins in several others. The high hopes that farmers had from NDA government are fast dissipating. A consequence of this should be clear from the panchayat elections of Gujarat, where BJP lost almost 75% of the seats.
The writing is already on the wall, and if it is ignored, the next casualty for the NDA may be Punjab, where farmers are already up in arms. The finance minister should visit Amritsar, the constituency he had hoped to represent in the current Lok Sabha, and talk to basmati farmers, and he will know what is happening on the ground. It is not just basmati or common rice, you talk to cotton farmers from Punjab to Gujarat, and they are in serious trouble, and so are sugarcane farmers in Uttar Pradesh and Maharashtra. It is an all-pervading gloom in agriculture that is seen today. Back-to-back droughts and tumbling commodity prices (except may be tur dal) have already broken the back of farmers. It is high time that the Centre pays heed to farming policies.
The prime minister is now asking the bureaucracy to do some transformational changes in policies and programmes, as he realises that piecemeal-changes will not take his government far enough. But the transformational changes were already suggested last year by the Shanta Kumar panel for food and fertiliser subsidies, and the restructuring of the role of the Food Corporation of India (FCI). The key recommendations were to move towards cash transfers, outsource much of the storage functions to the private sector. If these suggestions were implemented earnestly, one could have plugged massive leakages in PDS, saved large amounts that could have been ploughed back in to irrigation and better water management, raising productivity and moving towards better drought-proofing of Indian agriculture. Though the PM and FM have voiced positive responses with respect to direct benefits transfer (DBT), and the government has already tasted success with the same in cooking gas, it requires bolder effort and courage to convert food and fertiliser subsidies into DBT. And that is missing so far.
Food management remains in shambles, ridden with high levels of inefficiency and leakages (corruption). FCI is demoralised due to mounting arrears that have crossed Rs 70,000 crores. And the fertiliser industry is now almost a sick industry where no major fresh investments are taking place. The production is stagnating and imports rising over the last 15 years or so. One of the major reasons is the high unpaid bills of fertiliser industry, of over Rs 40,000 crore. The budgetary allocation of these two subsidies hovers around Rs 2 lakh crore, and another Rs 1.1 lakh crore
remains under the carpet as unpaid bills. The FM should be at least honest and transparent in bringing this total
(Rs 3.1 lakh crore) to the budget as explicit subsidies and then see where the fiscal deficit stands.
The PM and FM also talk of financial inclusion as the central policy pillar of their transformational strategy. The Jan Dhan Yojana was great in opening accounts. But if half of those accounts don’t have any transaction, that platform remains underutilised. In this context, it is worth leafing through the latest report on financial inclusion by RBI, which also talks of moving various farm subsidies towards DBT, and going for more science-based crop insurance system.
On crop insurance, the existing system is not serving the peasantry well. It needs to be resurrected where crop damages can be assessed in a few days with the help of automatic weather stations (AWS), satellites, drones and low earth orbits (LEOs), and compensation sent directly to farmers’ accounts, with digitised farm records locked in with Jan Dhan accounts, Aadhaar and mobile numbers. The FM and his team are well aware of these problems and the proposed solutions, as I personally have had the privilege to give a special presentation on this topic to them. I also hear favourable responses, but the progress so far is very slow. If these were normal times for peasantry, it would not have mattered much. But farmers are under severe stress, and even a day’s delay means not only heavy political damage but also poor implementation of good policies.
Lastly, water is going to be increasingly critical for drought-proofing Indian agriculture, and all sources of irrigation will have to be tapped. In this context, it may be worth noting that the time to complete major and medium irrigation schemes funded through Rural Infrastructure Development Fund (under NABARD) is much less than those purely funded by the state. A transformational strategy could be to double the allocation under RIDF.
Agri-market reforms is another transformational strategy that the government needs to work on for unifying markets across space and time.
In sum, there is enough consultation material with the finance ministry to revive agriculture. What it needs is courage to implement, and go beyond the courtesy of this consultative process.
The author is Infosys chair professor for agriculture, ICRIER