Budget 2016: Sleight of hand in the farm sector

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Updated: March 1, 2016 12:58:00 AM

The budget proves a disappointment in its lack of bold moves to rationalise the food and fertiliser subsidies

In the last two weeks, prime minister Narendra Modi addressed three farmer rallies—in Madhya Pradesh, Karnataka and Uttar Pradesh. Though it was late in the game—farmers have been under distress for the last two years—it is better to be late than never. At the rallies, the PM thundered that he would like to see farmers’ income double by 2022. It was like writing a prologue to the budget. With agri-growth having collapsed to less than 0.5% per annum (on average) in the last two years, the political writing on the wall was clear. In his Mann ki baat radio talk on Sunday, Modi said that Budget FY17 was his examination and he was confident of doing well.

How far has the budget addressed rural distress? Can it put agricultural growth back on track, say, at 4% per annum on a sustainable basis?

Let us look at some of its highlights: First, the allocation for the department of agriculture, cooperation and farmers’ welfare is raised from the FY16 revised estimate (RE) of Rs 15,809 crore to budgeted estimate (BE) of Rs 35,983 crore in FY17, a whopping increase of 127%! This would make anyone jump and conclude what a wonderful stroke FM has played for farmers. But, hold on! There is a little catch here. Much of the increase (Rs 15,000 crore) is due to interest subsidy on short-term credit. Earlier, this subsidy was Rs 13,000 crore and was shown under department of financial services and now, it has been transferred to the department of agriculture. So, it is more a sleight of hand than any real increase in allocation. Also, it is important to note that already this interest subvention scheme is being criticised for misuse by large farmers, who borrow large amounts at subsidised rates and put these in fixed deposits or lend to those who don’t have access to institutional credit at much higher rates. So, this is not going to redress rural distress much and cannot turn around farm growth.

Second, the Pradhan Mantri Fasal Bima Yojana, which, the PM has been calling a game-changer, gets R5,500 crore. If implemented quickly—and with relevant advanced technology—to assess crop damages and directly credit compensation amounts to farmers’ accounts, this can give some relief. But, the required infrastructure is not yet in place. So, we have to keep our fingers crossed for at least two more years for expected gains to show.

Third, there is surely some focus on irrigation, through the Pradhan Mantri Krishi Sinchayi Yojana. However, the budgeted amount under four components of this (R7,392 crore) is not very different from the RE for FY16 (R7,589 crore). A focus on irrigation calls for quick completion of many ongoing schemes (23 out of 89). There is also a provision to create a long-term dedicated fund of R20,000 crore under NABARD for irrigation and another one, of R6,000 crore, proposed for groundwater. Augmentation of irrigation facilities and proper water management holds the key for turning around Indian agriculture. But the allocations made are not enough to make a dent within the next two-three years. The budget also indicated the use of MGNREGA funds to set up 5 lakh farm ponds. The gains may come by 2019, if one is lucky.

Fourth, allocation under the Pradhan Mantri Grameen Sadak Yojana has gone up from R15,187 crore (RE FY16) to R19,000 crore (BE FY17), an increase of 25%. This is a good move which will provide connectivity to hinterlands and can contribute to growth with employment.

There are many other smaller but positive steps, from encouragement of organic farming to 100% FDI in food processing sector to a national e-market, but all of them will take time to give concrete results. They are not game-changers yet.

Where the budget proves a disappointment is its total lack of bold moves to rationalise the biggest resource-guzzlers, the food and fertiliser subsidies—totalling more than R2 lakh crore, and another R1 lakh crore of pending bills.

That’s where the biggest scope for savings was, and the budget stopped at just doing some pilots in fertiliser subsidy for DBT. Not enough to make much of a difference to the farm sector.

Overall, the budget makes the right moves as far as farming in the country is concerned, but it hasn’t been as bold as one would have assumed is required to relieve farm distress. Farmers will have to keep praying and rely on rain-gods for many more years to come.

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