Agri grants: Finance Commission sows seeds of change

February 9, 2021 6:15 AM

The recommendation of the 15th finance commission are in the right direction; `45,000 crore in grants is not small, but states might need larger incentives

The acreage increase, however, has come partly at the cost of nutri-cereals (this will be a concern). Any improvement in the production of pulses hereafter will have to come from productivity gains in rain-fed agriculture.

By T Nanda Kumar
Budget FY22 did have a few positives for agriculture: cleaning up FCI’s balance sheet (food subsidy), strengthening agri infrastructure, incentives to start-ups and the enhancement in RIDF allocations. Of these, the Rs 100,000 crore Agri- Infrastructure Fund is likely to be the real game-changer. The Budget provision for interest subvention on this account is small, signalling a slow start.

The Fund will depend on institutional sources to provide loans at concessional rates to farmers, FPOs, start-ups and other agripreneurs for investment in agri-related infrastructure. FM Nirmala Sitharaman also placed the report of the 15th Finance Commission (XVFC) in Parliament. The report contains important recommendations for agriculture. XVFC has recommended a sum of Rs 45,000 crore as performance-linked incentives and grants to states for reforms in agriculture. These reforms are in four categories: land-lease reforms, sustainable and efficient water-use in agriculture, export promotion and contribution towards Atmanirbhar Bharat. Each of these carry an equal weight, of 25%.

A noteworthy observation in the report relates to its earlier recommendation to incentivise state governments to adopt the three Model Laws relating to land leasing, contract farming and agri-market reforms. XVFC has dropped those relating to contract farming and agri-market reforms in the wake of new Acts, namely, Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act and Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act. Whether the approach suggested by XVFC was a better option than hurried legislation is a matter of debate. My personal view is that going along with XVFC’s recommendations had great merits.

Let us look at the four reforms suggested by XVFC. Land-lease reform: The objective is to ‘create legal provisions for liberalisation and recognition of land lease’. The idea behind this seems to be the finding that land leasing is prevalent in many parts of the country, calling for formal recognition of short- and long-term land lease for agriculture, agro-industry and agriculture-related logistics. Tenant farmers are reported to be as high as 40% in some states. Most of them are deprived of the benefits of schemes like PM-KISAN (Odisha’s Krushak Assistance for Livelihood and Income Augmentation scheme took care of this problem through an innovative identification process).

As and when DBT in agriculture gets rolled out, the tenants will be left out again, since they have no documents to prove their tenancy or lease. Let us not confuse land leasing with corporate farming; it is about marginal farmers who cultivate other farmers’ lands. While ownership of land remains an emotive issue, recognising land leasing with the guarantee that ownership will not pass on to the lessee will benefit millions of tenant farmers.

Maintaining and augmenting groundwater stock: This, in my view, is the most important and should have gotten much higher weightage. This issue alone could qualify for a separate incentive. Groundwater is a common resource and public good. It has so far been treated as a private resource of the person who owns the piece of land on which a tube-well is constructed. While some states have placed restrictions on new drilling, the situation in many parts of India continue to be alarming due to over-exploitation.

The Commission has recommended incentive-based grants to states that ‘maintain and augment groundwater stock and put a check on any fall in groundwater table’. Whether states like Punjab, where free power is a politically sensitive issue, will bite the bullet remains to be seen. Will they take a potential political risk to get a few thousand crores as a grant? Doubtful! Can this money be used to incentivise farmers who do not use groundwater? While this is a recommendation in the right spirit, the question is: Is this enough?

Export promotion of agricultural products: The focus is on cluster development anchored by value-chain private players. Seven value chains (five for export and two import-substitution), namely, rice, shrimp, spices, buffalo meat, fruits & vegetables for export, and vegetable oils and wood for import substitution, have been identified. Another set of fifteen value chains have been mentioned. While the focus on export of these items is laudable, more efforts will be required.

The Finance Commission grant alone will not be sufficient to get this going but will need concerted efforts from ministries of agriculture, animal husbandry & fisheries, food processing and commerce. NITI Aayog has the difficult task of allocating points to states based on well-defined criteria which, even with the best efforts, will be subject to interpretation (take onion export ban, for instance).

Contribution towards Atmanirbhar Bharat: This focuses on increasing production of oilseeds, pulses, and wood & wood-based products. India imports nearly 15 million tonnes of vegetable oils (mostly palm oil) valued at approximately Rs 69,000 crore (about $10 billion) every year to meet 60% of the domestic demand. Pulses, however, are a different story; production of pulses was almost static for a decade at 14.5 million tonnes till 2009-10. A programme covering 60,000 villages was announced in the budget of 2010 and the area under pulses cultivation jumped by 3 million hectares next year, with production going up by 3.5 million tonnes.

Given sustained increases in minimum support prices, pulses production went up to 29 million tonnes in 2018-19 with some increase in acreage and large productivity gains. The acreage increase, however, has come partly at the cost of nutri-cereals (this will be a concern). Any improvement in the production of pulses hereafter will have to come from productivity gains in rain-fed agriculture. This is not something states can handle by themselves without support from the Centre. Wood & wood products are ideal candidates for import substitution but may need tweaking of Forest & Environment Act regulations with regard to cutting of trees in private lands.

The recommendations of XVFC are in the right direction, and a sum of Rs 45,000 crore is not small, but will this incentivise the states? Ministries in central government will have a major role to play!

Former Secretary, Food & Agriculture, Govt of India. Views are personal

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Vaccine wastage? The supply far outstripped actual vaccinations
2Three kings continue to hold the aces
3Across The Aisle: Courts sound the bell for liberty