The government needs to restore the health of the rural economy without increasing unproductive subsidy spend for the agriculture sector in the upcoming Budget, according to the latest study by Crisil Research, reports fe Bureau in New Delhi. It must work out a holistic and structural approach for agriculture, including widening irrigation and crop insurance coverage, direct subsidy transfer and reorienting farm subsidies to boost investment in the sector, the report says.
Three monsoon shocks (deficient rains in 2014 and 2015 and unseasonal shower in early 2015), a crash in global commodity prices and reduced employment generation under the National Rural Employment Guarantee Scheme have badly hurt rural consumption and necessitated the urgent reforms.
The report says a sharp increase in Budget allocation compared with the dismal amount of Rs 2,600 crore for 2015-16 is required to substantially increase crop insurance coverage and protect farmers from crop failures. Although the Pradhan Mantri Fasal Bima Yojana will be operational from 2016-17, effective implementation is required to meet the target of 50% coverage in the first two years. The current Universal National Crop Insurance Scheme covers only 25% of farmers and 20% in area terms. At the same time, adequacy of coverage per farmer per crop will be critical to ensure the usefulness of the scheme.
For “drought-proofing” the economy, the government needs to deploy sustainable micro-irrigation schemes and create assets for rainwater harvesting and storage. Spending on schemes like the Pradhan Mantri Krishi Sinchai Yojana should be encouraged and linked to employment generation. Irrigation covers just 46.9% of the total cropped area, and around 84% of pulses, 80% of horticulture, 72% of oilseeds, 64% of cotton and 42% of cereals are cultivated in unirrigated conditions.
The government needs to encourage production by making farming profitable at a time when the cost of production is rising at a faster pace than the increase in remuneration. For example, in a key pulse like urad, while output prices in the last decade have risen by 12%, the cost of cultivation in major producer states have risen in the range of 12-26%.
To herald the second green revolution, the government needs to improve its investments in agriculture, and to make room for spending, it will have to reorient expenditure from subsidies to investment, the report said. During 2012-13 and 2013-14, while public sector gross capital formation in agriculture grew by an average 4.7%, spending on food subsidy rose nearly three times faster. Of the total government spending on agriculture, less than 10% is towards capital formation, while the rest is in the form of subsidies for food and fertilisers.
A critical step to funnelling resources into agriculture will require plugging leakages in the existing public distribution system (PDS), which stood at 46.7%, according to the Gulati-Saini study in 2015. Moreover, this will give households a choice on how to use the cash — whether to buy food grains or other items of consumption — resulting in not just a consumption boost for the economy, but also social welfare through better nutritional intake.
While agriculture remains in focus, a lot of attention is needed to generate non-farm employment as well to create a safety net to mitigate losses to the farm sector in case of a weather shock, and provide a long-term solution to impart skills training and create employment.