Will Nirmala Sitharaman’s Budget for agriculture boost economy? Not until this happens

Updated: February 04, 2020 11:20 AM

The Finance Minister Smt. Nirmala Sitharaman presented her second budget on February 1, 2020, against a dismal background of falling GDP growth, rising prices and growing unemployment.

Budget 2020, Budget India 2020-21, India Union budget 2020, Rural Development, nirmala sitharamanWhen we talk about demand generation, the rural economy comes to the fore where more than half the population lives.

By Meenakshi Rajeev

Finance Minister Nirmala Sitharaman presented her second budget on February 1, 2020, against a dismal background of falling GDP growth, rising prices and growing unemployment. While there was a series of measures to boost the corporate sector post the budget of 2019-20, such supply-side measures have failed to raise the spirits of a flagging economy. Indeed it is argued that demand deficiency is the major cause of slow down and concrete measures needed for reviving demand in the economy. Thus one expected a slew of demand-side measures in this budget.

When we talk about demand generation, the rural economy comes to the fore where more than half the population lives. People living in rural areas have a higher marginal propensity to consume and the rural sector has been a driver of growth for several sectors of the economy including the FMCG segment. IMF chief economist Gita Gopinath has cited poor rural consumption as one of the key reasons behind lowering India’s GDP growth rate to 4.8 per cent in FY20 from 6.1 per cent estimated in October 2019. Has the current budget done enough to ensure a substantial enhancement of rural demand? Maybe not. For example, if we look at the budget for Agriculture and Farmers’ welfare, it has increased from Rs 1.30 lakh crore in 2019-20 to only Rs 1.34 lakh crore.

While the budget speech contains a number of promises to boost agriculture and allied activities the actual road map to achieve these are not clearly defined. Consider the case of doubling farmers’ income. Since about 80 percent of Indian farmers are small and marginal farmers with small landholdings, it is not possible to double their income through agriculture production alone. The rural nonfarm sector needs to be the focus if we wish to really double farmers’ income. However, there is no concrete plan to develop a diversified rural non-farm sector. Emphasis on solar energy generation, however, needs to be appreciated.

Further, providing marketing opportunities to farm products at remunerative prices continues to be a major challenge. In an earlier budget, the Government had promised that the minimum support price would be 1.5 times the cost of cultivation and it was further stated that the scheme would encompass all the crops not included so far. To help agriculture marketing and better price discovery, the E-NAM online platform was also created. However, due to operational hitches such ambitious programmes have not delivered the desired result. Small farmers continue to get unremunerative prices for their products with intermediaries taking a large share of the final price of the product. Indeed the allocation for the market intervention and price support head has seen a decline in this budget to Rs 2000 crore, whereas Rs 3000 crore was allocated in the budget of 2019-20. The direct cash benefit transfer provided to farmers is also too low to make any substantial difference to their income and notably allocation under PM-Kisan at Rs 7500 crore has not seen any increment.

Farmers in India today face immense risk due to climatic aberrations as well as volatile prices. Even when production levels are satisfactory, farmers’ income remains a cause of concern. The Pradhan Mantri Fasal Bima Yojana was introduced to give relief to the farmers for crop loss due to climatic aberrations. While the scheme has the stated objective of incorporating 50% of the cultivated area under it, the actual figure continues to hover around 20 percent. The budget allocation this year for Fasal Bima Yojana has been increased only marginally from Rs 14000 crore (in 2019-20) to Rs 15695 crore in the current budget. Thus one cannot expect the scheme to do substantially better this year. There is also a substantial delay in disbursement of claims which makes it unattractive to farmers. Notably, though the crop insurance scheme provides relief to farmers, it usually covers only the cost of cultivation and not the potential value of the output. In other words, for the loanee farmers, who are mandatorily insured by the bank, it is only the bank loan that is protected by the crop insurance scheme. However, the farmers also need support to maintain themselves during the interim period, in the face of crop loss. Hence it is time to consider an insurance cover for the value of crops to provide better support for farmers during crop loss.

Among other rural sectors, the Finance Minister has also talked about boosting the fisheries sector. However, allocations to this sector too in this budget do not show much improvement. The fisheries sector in general and the fish processing sector in particular in the country is facing a number of challenges. The processing industry today is faced with excess capacity and a lack of raw material for processing. The produce from the sea is declining at a faster rate. There are several operational hitches for importing fish as raw material for further processing and exporting. Unless these challenges on the ground are addressed the prospects for any substantial improvement in the marine fisheries sector appear to be dim.

Another important means of providing money in the hands of the rural populace, especially to the sections such as landless laborers, is through the MGNREGS scheme. Ironically allocation to this important scheme has declined from about Rs 77000 crore to Rs 61, 500 crore in this budget. A boost to this programme could have increased rural assets as well as income and thereby created the sorely required demand at this point in time.

Thus while the current budget makes promises to boost agriculture and the rural sector, in reality, whether the state of the farmers or rural landless laborers would improve to create enhanced income and consequent savings to create in turn the requisite demand and boost the economy, is doubtful.

(Meenakshi Rajeev is Professor, Institute for Social and Economic Change, Bangalore. The views expressed are the author’s own)

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