Budget 2019: Contract farming, food processing key to ending rural distress

New Delhi | January 21, 2019 6:38 PM

Farm Expectations from Union Budget 2019: In the previous budget, the Government had promised to set the minimum support price at 1.5 times the cost of cultivation

India Union Budget 2019 ExpectationsBudget 2019

By Meenakshi Rajeev

Union Budget 2019 Expectations for farm Sector: Even though the share of agriculture in GDP has come down considerably over the years, more than half the population of the country is still dependent on agriculture, making this an important segment, from the point of view of vote-bank in an election year. Added to this is the fact that there is large scale farmer distress and farmers’ protests are getting louder by the day. Under these circumstances, this is a sector that will undoubtedly get special attention in this budget. In what way Finance Minister will attempt to address the distress of the farmer community in this budget is an issue of interest to all.

Table 1 Production of Major Agriculture Crop- in Million Tons




Total Cereals



Total Pulses



Total Food Grains



Source: India in Figures, mospi.gov.in

Ironically, while the production of food is increasing in India (Table1), storage infrastructure and marketing bottlenecks are creating immense problems for farmers in getting remunerative prices and eventually a decent income. Concrete measures to address these problems need to feature prominently in this budget.

Read Also: Budget 2019 PM Modi may have to lean on the rural sops he once derided; here’s why

In the previous budget, the Government had promised to set the minimum support price at 1.5 times the cost of cultivation, and it was also said that the scheme will encompass all so far unannounced crops. This provision can help farmers, provided they are able to market their products through proper/Government channels, where the prices they receive are formally registered. Most of the small and marginal farmers sell their product informally in the village, with no record, and hence do not get an opportunity to get compensation under this MSP provision.

Many a time, in reality, it is the intermediary traders, not the farmers, who are the beneficiaries of this scheme. To facilitate, especially the small and marginal farmers, who constitute more than 80 percent of farmers in India, to get the direct benefits of marketing facilities at the local levels, it was also declared that 22,000 rural haats will be upgraded to Gramin Agricultural Markets (GrAMs).

ENAM is another e-marketing facility declared with much funfair. However, none of these promises have been able to make a significant change in farmers’ income in the country and farmers continue to get low prices for their products. ‘Onion prices bringing tears to farmers’ eyes’ was only recently in news. Thus, in this budget, the Government needs to show concrete and adequate measures taken for reducing market uncertainty and ensuring remunerative price for farmers.

Contract farming and linking farmers with the food processing sector is an important step to ensure better prices to them through the market mechanism. For this to happen however, proper measures are needed to nurture the food processing sector and we hope the Honorable Finance Minister will allocate necessary resources for boosting this industry. However, only high value food processing firms can provide better opportunities to farmers. Our analysis of Annual Survey of Industries data as well as NSSO data reveals that more than 95 percent of these enterprises, generating about 75% of the total employment in the food processing segment, are in the informal sector. Linkages with these firms do not offer much help to farmers in getting remunerative prices for their farm products.

Finally, a good pricing scheme cannot help farmers in case of crop failure. The Pradhan Mantri Fasal Bima Yojana is an important initiative to provide a safety net to farmers in case of crop losses. While the premium of this scheme is lower than the previous crop insurance schemes, there is a talk of further reducing the premium.

Even though the new scheme is much more attractive, and an increased number of farmers have enrolled for the scheme, it is to be noted that 29% of cultivated land is covered under PMFBY as against the target of 40%; and India in this respect is way behind China at 69% of agricultural area covered under crop insurance (Pullamvilavil: The Wire, 22nd April2018). Another matter of concern is that in the year 2018, gross cropped area in India under the crop insurance scheme has declined compared to the previous year (Pullamvilavil: The Wire, 22nd April 2018). Delay in payment of dues is another major implementation bottleneck of the scheme.

More importantly, crop insurance cover is only for the cost of cultivation, not for the value of output. It is also compulsory the for loanee farmers. If the farmer has taken a bank loan, which is usually based on cost of cultivation, the insurance compensation is given to the bank, leaving nothing in the hands of the farmers. On the other hand, if the crop insurance cover is given for the total value of crop, estimated using the new procurement prices declared in the last budget, that can be of great help to farmers in reducing their distress in case of crop failure. It is necessary that the forthcoming union budget addresses such issues pertaining to the crop insurance scheme.

 The author is a faculty member at the Institute for Social and Economic Change, Bangalore and also a member of the panel of experts for the EGROW foundation, New Delhi.

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