Re-orient food and fertiliser subsidies to have the fiscal space for investment in agri-R&D and irrigation
Indian farmers are reeling under stress this year. Earlier, many of them lost their crops in the kharif season, which was almost a drought, with monsoon rains 12% below the long-period average. And now, the unseasonal downpour has impacted them adversely in the rabi season. Be it a drought or a downpour, farmers are at the receiving end.
Agri-GDP growth this year, which was expected to be a meagre 1.1% before the unseasonal rains, may fall flat at just zero, if not negative.
While various agencies are applauding India as the fastest-growing large economy with the overall GDP expected to grow at 7-7.5% this fiscal, what meaning will it have for the masses engaged in agriculture? Remember, almost half of India’s work-force is still engaged in agriculture, and an even larger part of the population is still dependent on it, despite the gradual diversification of their incomes to non-farm sources. It will be a big mistake if one chooses to celebrate India’s economic performance as ‘India shining’ when its agriculture is limping. It should be a wake-up call for our policy-makers.
One often hears in the corridors of policy-making at the Centre that agriculture is a state subject and what can the Centre do to improve it. The finance minister has already announced in the Budget the enhancing of the share of states—from 32% to 42%—in the central tax revenue. And therefore, from now on, agricultural performance depends upon the performance of states. We are not sure how much extra allocation will go to the states with this new arrangement, as allocation of many of the central schemes for the agriculture sector, like the Rashtriya Krishi Vikas Yojana, are drastically cut. My humble question, however, to policy-makers in the agri-food space is: Was the Green Revolution in wheat and rice or the White Revolution in milk brought about by the states? These were initiatives of the Centre, with concerted efforts to
involve many states—but, in the end, led by the
Centre. Thus, if the Union government has a clear vision and the necessary confidence, agriculture can be uplifted.
Prime Minister Narendra Modi has been talking about cooperative federalism. Agriculture is the prime candidate to show how it can work. Can NITI Aayog steer this cooperative federalism to usher in a second Green Revolution, which is waiting to be harvested in the eastern belt? Can it devise a strategy to ensure at least 4% agri-GDP growth at an all-India level, which is the target of the 12th Five Year Plan? So far, the first three years’ performance of the 12th Plan is pathetic, at less than 2% per annum.
Agriculture needs massive investments, for irrigation, agri-R&D, and for building faster and more efficient value-chains between farmers and retailers. Irrigation alone may need more than R3 lakh crore if every farmer has to be provided with it. But the budget of the ministry of water resources for FY16 is just R4,232 crore, less than the revised estimate of R6,009 crore for FY15. States may pitch in through borrowings from the Rural Infrastructure Fund (RIDF), but at this pace and given such allocations, all farmers getting irrigation by 2022—a promise made by the prime minister to the Indian farmers—seems to be a distant dream. It needs a major shift in strategy to mobilise resources for investing in agriculture, somewhat akin to that in the infrastructure sector for roads, railways, ports, airports, etc.
It is interesting to see that the overall public resources going to the agri-food space in the country are not paltry. If one adds the allocations of five ministries (agriculture; chemical and fertilisers; consumer affairs, food and public distribution; food processing industries and water resources) for FY16, it comes to roughly R2.3 lakh crore. The problem, however, is that more than 85% of this budgeted allocation is for food and fertiliser subsidies. This percentage goes much higher if one counts the pending arrears for the food (about R50,000 crore) and fertiliser (about R40,000 crore) subsidies, which are not shown in the budget of the Union government. This is the biggest tragedy of Indian policy-making: putting the cart before the horse! It is well known that the returns from investments are 5-10 times higher than through subsidies.
Policy-making at the Centre, therefore, has to crack this nut, and re-orient the regime of food and fertiliser subsidies, by moving through cash transfers to the identified beneficiaries. As the prime minister has frequently stated, we need not cut the level of subsidies to the poor consumers or farmers, but change the form in which they are given by using an income policy rather than a price policy. This alone will help reduce leakages, bring efficiency in the use of resources, and save around R40,000 crore annually, which can be ploughed back in agriculture as investments in water, agri-R&D, rural roads, etc.
The latest Economic Survey talks about this change-over through the JAM (integrated use of Jan Dhan, Aadhaar and mobile telephony) method. The system is moving towards such a framework for the cooking gas subsidy and many other minor payments, but the real gains lie only when food and fertiliser subsidies are also routed through that. Admittedly, there are some operational problems, like opening of accounts for the beneficiaries, linking them to Aadhaar numbers, identifying beneficiaries for food and fertiliser subsidies, streamlining land-records of farmers. But these are not impossible to solve. If there is commitment and clarity at the highest level of policy-making, these operational problems can be sorted out in a span of one to two years. And it would be worth putting that on priority, given the potential gains.
Without such a bold move, agriculture will keep getting lip service, the policy makers will keep passing the buck to the states, and farmers will keep looking up at the sky, hoping for acche din to arrive!
The author is Infosys Chair professor for agriculture at ICRIER