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Budget 2016: The findings raise questions over whether Prime Minister Narendra Modi would be well advised to force the pace on austerity at a time of weakening nominal growth, soft revenues and slumping export demand. “We’ll take a longer route to consolidation; otherwise the economy would be negatively affected,” said Rishi Shah, an economist at Deloitte who took part in the poll and forecast upward revisions in the deficit. (Reuters)
1. Budget 2016: Expand irrigation cover – In India, poor irrigation cover exposes agriculture to shocks from uneven rainfall patterns. At the all-India level, irrigation covers only 46.9% of the total cropped area, exposing the rest to monsoon shocks. Around 84% of pulses, 80% of horticulture, 72% of oil seeds, 64% of cotton and 42% of cereals are cultivated in unirrigated conditions. In the fiscal 2016 Budget, the government allocated Rs 50 billion to support micro-irrigation, watershed development and the Pradhan Mantri Krishi Sinchai Yojana (PMKSY) that extends crop insurance. Such spending needs to be encouraged more and linked to employment generation. Focus on irrigation will require the government to deploy sustainable micro-irrigation schemes and creation of assets for rainwater harvesting and storage. (Reuters) -
2. Budget 2016: Big push to crop insurance – One way to mitigate the pain from crop losses due to weather shocks is through crop insurance. But in India, coverage remains low. For example, the Universal National Crop Insurance Scheme, which merges all existing schemes, only covers 25% of all farmers and 20% of the area. A report by National Sample Survey Organisation (December 2014) confirms the low crop insurance cover, with the crop with the highest insurance coverage being cotton. But the adequacy of this insurance cover is also suspect. For crops such as paddy and wheat, few households have insurance. As the frequency of weather-related shocks rises, so must insurance coverage. (Reuters)
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3. Budget 2016: Encourage production by making agriculture profitable – Profitability at the farm is low and declining as cost of inputs continues to soar. And if that weren’t enough, input and output cost dynamics have been turning unfavourable year after year, reducing the farmer’s profit margin. Pulses is one such crop where such disparities are high and rising. Similarly, in gram and tur, output prices grew about 10%, but cost of cultivation rose 12-18%. The Bharatiya Janata Party (BJP) had in its 2014 general elections manifesto, announced its intention to take steps to enhance profitability in agriculture by ensuring a minimum 50% profit over the cost of cultivation. This will require, among other things, ensuring availability of high variety seeds at reasonable costs, reducing cost of transportation, effective market pricing of agricultural produce, drought-proofing the sector and introducing latest technologies for farming. (Reuters)
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4. Budget 2016: Farm investment versus farm subsidy – After coming to power, the National Democratic Alliance (NDA) government promised a technology-driven second Green Revolution in India. Crucial to this objective is investment, but public sector investment in agriculture is low and poor, while private investors don’t have enough incentives. Of the government’s total government spending on agriculture, less than 10% is towards public outlay on capital formation, while the rest is in the form of subsidies for food and fertilisers. Therefore, for investments in agriculture to increase, the government will have to take the first step forward. And to make room for spending, it will have to reorient expenditure from subsidies to public sector investment in agriculture. (Reuters)
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5. Budget 2016: Extend direct benefits transfer (DBT) scheme to food and fertiliser subsidy – A critical step to funnelling resources into agriculture will require plugging leakages in the existing public distribution system (PDS). As per a 2015 study by Gulati and Saini, 46.7% of the off-taken grain is leaked from PDS. This is the gap between the grains off-taken by each state and consumption by the targeted consumer for the year 2011-12. Extending the DBT scheme to include food subsidy in addition to LPG transfers will help curb losses due to leakages and result in significant savings for the government. At the same time, it will reduce losses due to pilferage and wastage and ensure better targeting of food subsidies. Moreover, this will give households a choice on how to use the cash – whether to buy food grains or other items of consumption. A CRISIL Study4 finds that while households in the lowest income bracket, particularly in rural India, might purchase foodgrains, those with slightly higher income levels are likely to spend the additional ‘income’ on protein-rich food (milk, egg, fish and meat), clothing & footwear, rent & conveyance, medical and education expenses. This will not only result in a consumption boost for the economy, but also go a long way towards raising social welfare through better nutritional intake and higher spending on health and education. (Reuters)
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(Reuters) Budget 2016: In a possible indication that the PM Narendra Modi government may have to borrow more to raise pay for government employees courtesy the 7th Pay Commission report, and bail out crisis-hit banks, the Economic Survey 2016 has pointed out that Arun Jaitley should review the mid-term fiscal deficit strategy. (Reuters)
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