Budget 2020-21: With the dual objectives of India becoming a USD 5 trillion economy by 2024-25 and also doubling farmers’ incomes by 2022-23, the agricultural sector needs to play an even more important role in the coming year.
By Ajitesh Mullick
Budget 2020 India: With the dual objectives of India becoming a USD 5 trillion economy by 2024-25 and also doubling farmers’ incomes by 2022-23, the agricultural sector needs to play an even more important role in the coming year. As per the Economic Survey of India 2019, India needs to grow at ~8% to meet the former objective. With India’s GDP growth slowing to 5% in Q1 and to 4.50% in Q2 of current Financial year (as per advanced estimates reports from NSO – National Statistical Office), the agricultural sector needs to play a DECISIVE role in the coming years for India to achieve its targets. Thus, we expect, this Budget also will have lots of announcements for this sector.
For the agricultural sector to grow, not only does the farm production and productivity need improvement, but also the farmers’ incomes need to be raised simultaneously. This entails raising prices of agricultural goods – which may however adversely affect the end consumers and Inflation also. Thus a fine balance has to be there between the two.
It needs to be noted that India is the largest producer, consumer and exporter of most agricultural commodities. Agricultural and allied sectors share ~15% of Indian GDP and thus remain critical in determining Economic growth, GDP growth, Inflation and overall growth for farmers, where it is the primary source of livelihood for more than 50% of India’s population. Lower growth in 2018-19 for agri and allied activities estimated at 2.9% – as per the Central Statistical Office report, have not helped matters. 10% excess rains in 2019 (as per IMD report), resulting in floods and leading to its adverse impact on the sowing area, crop productivity and apprehensions of its adverse impact on the crop production for 2019-20 may well remain a matter of concern.
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We propose the following for the agri sector:
The recent years have witnessed Government regularly raising MSP (minimum support price) for crops. This enables Government agencies to purchase directly from farmers at MSP – thus providing them better returns. However, procurement of non-perishable items have to be increased – this serves the dual objectives of 1) ensuring better returns for farmers and 2) checking price rise (and if effect, Inflation) by releasing these excess stocks during times of shortages. Higher procurement by Government agencies directly from farmers could effectively ensure eliminate the middlemen – A MAJOR CAUSE OF EXPLOITATION OF FARMERS AND PRICE RISE FOR ULTIMATE CONSUMERS.
Stringent quality control measures for warehouses are needed apart from increasing their capacity. The first step would be more appropriate for exports so that cases of rejections are not there. The second step is critical to stop crop damage due to a lack of adequate storage space.
Indian farming is still dependent mainly on the Monsoon factor. More up-gradation for the forecasting agency, the IMD (Indian Meteorological Department) is needed. Better and timely decision making for farmers as to which crop to sow would be beneficial not only for them but also Bankers (who provide loans) and in effect, benefit the Indian economy as a whole.
Exports are highly lucrative and can help raise farmer income significantly. For that, newer markets need to be developed. More export incentives need to be given so that farmers can avail of more benefits and export demand too rises. This would attract farmers to not only raise agricultural output but also focus on quality aspects, which remain critical while exporting. More focus on the education part is also needed for that. From a long term point of view, a vision to create more educational Institutes for agriculture must be developed. Focus on R & D, rural health and education will ensure a long term benefit for farmers. Again focus on farmer education is needed so that they can be encouraged to shift to other more lucrative activities like animal husbandry, fisheries etc. that are less dependent on the Monsoon factor.
The government needs to focus on allowing FIIs and banking sectors in the Commodities Futures markets (with proper rules and regulations). This will ensure higher liquidity – resulting in better price realizations for farmers and traders, lesser speculation and improved procurement activities. Strong growth of the Exchanges is needed to help farmers get a reliable platform to sell their produce.
E-NAM (Electronic national Agricultural Market), that was started as a pan-India electronic trading portal for providing better price discovery through a transparent auction process based on the quality of produce along with timely online payment. However, the concept needs to percolate more into the system so that more and more farmers and traders are able to take advantage of that. This additionally reduces the costs with the elimination of middlemen.
Raising crop productivity gains more prominence when we consider the fact that rapid urbanization is ensuring a fall in the cultivable area. Focus is need for small farmers who have low area fields, which if merged can result in higher crop productivity. Also, focusing more on providing Irrigation facilities may be another step in improving crop productivity.
Improved rural infrastructure would result in lower transportations costs for farmers and lower the input costs.
EXPECTED IMPACT ON THE AGRI MARKET
A fluctuating and excess Monsoon this year (resulting in floods in many areas) leading to apprehensions of a fall in crop production, rising Crude oil prices, strong Dollar vs Rupee – along with expected favorable announcements from the Budget for the farmers in raising their income could keep sentiments FIRM for the Agri markets in days to come. Expected actions on more effective procurements at MSP from farmers, providing more export incentives, curbs on imports, exploring newer export markets would be beneficial for farmers as that could help increase their incomes. On the other hand, any step on increased procurements by Government agencies and their proper distribution (by eliminating middlemen) will be beneficial for end-use consumers.
(The author is VP Retail Research, Religare Broking. The views expressed are the author’s own)