The Budget 2017 has been prepared. Union Finance Minister Arun Jaitley inaugurated the ‘Halwa Ceremony’ that marks the printing of the Budget documents. For the next 10 days, more than 100 officials of the finance Ministry will stay in budget printing press in New Delhi and they will be not be allowed step out of the premises till Jaitley's budget speech is over on 1 February 2017.
Ending decades of colonial hangover, the annual budget presentation date has been preponed by one month to improve the effectiveness. Previously, the annual General Budget was presented on the last working day of February.
As per an announcement made by Prime Minister Narendra Modi, the early budget cycle will affect the real economy in a positive manner as the money will be available for schemes by the starting of the financial year in April.
Added to this, rolling out of the Goods and Services Tax (GST) on 1 July 2017, impact of the demonetisation drive and cashless economy initiatives have made the Budget 2017 a unique document in more than one sense.
Compared to other sectors of the economy, agriculture is the most sensitive to any policy changes with respect to subsidies, taxes, cesses and promotional schemes. Farmers always look up to the government for seeds, fertlisers, energy subsidies, minimum support prices, procurement of the produce, etc.
It is ironic that even after 69 years of independence and pro-active measures to liberalise the economy, the completely privately-owned agricultural sector has no momentum of its own and is dependent on ‘external’ administrative measures for survival.
Against this backdrop, we present an overview of the Indian agriculture sector that include the challenges faced by it and the solutions one can expect from the Budget 2017.
Present state of Agriculture/Challenges faced by the Agriculture Sector
• Positives: The Central Statistics Office (CSO) recently estimated that the agriculture sector will grow at 4.1% during 2016-17. This development is a big relief to farming community given the lackluster growth in previous years.
• The agriculture GDP grew up by just 1.2% in 2015-16 and experienced a 0.2% contraction in 2014-15 due to consecutive monsoon failures and the resultant production deceleration and heightened rural distress.
• Improved water storage in reservoirs due to favourable monsoon and higher crop prices has led to an increase in sown area in the Kharif as well as the Rabi seasons.
• Negatives: Agricultural productivity in India is one of the lowest in the world. For instance, China produces more than 600 million tonnes of food grain, compared to India’s 251 million tonnes (2015-16) from a cropped area, which is less than that of India.
• Some may argue that India’s poor productivity is linked to small landholding size. However, this is not entirely true. China achieves this ‘super productivity’ with a holding size that is almost half of India’s 1.15 hectares.
• Over the past few years, the share of agriculture and allied sectors has been declining. This trend is of great concern for the policy makers. Because, around 58 per cent of rural households, who are primarily dependent on agriculture for livelihood, are contributed only 15% of Gross Value Added (GVA) during 2015-16 at 2011-12 prices.
• The fact that the services sector accounts for 52% of national output with not even half of the human resources employed in agriculture shows the imbalances in the economy.
• Agriculture is the largest informal sector of Indian economy. Hence, lack of social safety nets make farmers and agricultural labourers vulnerable to frequent financial shocks due to changes in demand in India and abroad, fluctuations in rainfall and policy changes.
• As per an estimate, farmer suicides increased by over 40 per cent between 2014 and 2015. While 2014 saw 5,650 farmer suicides, the figure crossed 8,000 in 2015.
• Despite being an agriculture country, India imports pulses and vegetable oils in large volumes. This causes considerable loss of precious forex reserves.
Recent measures to strengthen agriculture sector are –
The Union Budget 2015-16 identified Agricluture and Farmers Welfare as one of the nine pillars to transform India into a developed nation. Accordingly, the government has decided to take measures to double farmers’ income by 2022. Some of those measures are -
• Creation of a dedicated Long Term Irrigation Fund in NABARD with an initial corpus of Rs 20000 crore.
• Four new projects were launched with an investment of Rs 850 crore to improve livestock. The new projects are Pashudhan Sanjivani, Programme on Advanced Breeding Technology, E-Pashudhan Haat and Nakul Swasthya Patra.
• A Unified Agricultural Marketing ePlatform was set up to provide a common e-market platform for wholesale markets.
• Under the MGNREGA, 5 lakh farm ponds and dug wells in rain fed areas and 10 lakh compost pits for production of organic manure are taken up.
• Krishi Kalyan Cess of 0.5 percentage was introduced on all taxable services starting from 1 June 2016. The proceeds are exclusively used for financing initiatives for improvement of agriculture and welfare of farmers.
• Surcharge levied at 7.5 per cent of undisclosed income is renamed as Krishi Kalyan Surcharge (KKS). The proceeds from the cess are used for development of agriculture and rural economy.
Some of the other measures are –
• In tune with the changing attitude of the government vis-à-vis agriculuture, the Ministry of Agriculture was renamed as the Ministry of Agriculture and Farmers’ Welfare in 2015.
• In 2015, the Paramparagat Krishi Vikas Yojana (PKVY) was launched to promote organic farming.
• Under the scheme, farmers are encouraged to form groups or clusters to take up organic farming methods over large areas.
• In July 2015, the Union Cabinet approved the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) with an outlay of 50000 crore rupees.
• The PMKSY seeks to bring all the existing water conservation programmes under a common platform so that a comprehensive and holistic view of the entire water cycle is taken into account.
• In January 2016, Union Cabinet approved the Prime Minister Fasal Bima Yojana as a comprehensive agriculture insurance scheme.
• The scheme is a big relief for farmers in distress as it covers all the commercial and horticulture crops and even post harvest losses.
• Interlinking of Rivers Programme has been given a new push by the government. Recently, Rs 9,393 crore Ken-Betwa river interlinking project has received clearance from the environmental appraisal committee (EAC) and Tribal Affairs ministry.
Relevance of Agriculture to the overall Indian Economy
• Despite its low-level of contribution to GVA, the overall growth of the economy is largely dependent on the growth of agriculture sector due to the forward and backward linkages it has with other sectors of the economy. For instance, we frequently come across the situation that whenever the IMD downgrades monsoon forecast by any reason, we can find immediate crashing of the sensitive index (SENSEX).
• The Majority of the population who are dependent on agriculture are poor and illiterate. They neither have alternate skills nor sufficient savings in case of crop failure. Hence, the agriculture development is not a luxury, but a necessity for the country.
• The present pace of food grain production is not adequate to meet the nutrition requirements of over 1.5 billion population in 2050. Since the land as a resource is limited, it is through improvements in productivity and production, we can achieve the desired level of output.
• Achieving income security for farmers is the need of the hour. The government gives different types of subsidies to farmers like fertilizer, irrigation, equipment, credit subsidy, seed subsidy, export subsidy, etc to help the farming community.
• Although these subsidies are meant to help those farmers who are in distress, they have their own share of negative effects on the Indian economy.
• As per an estimate, around Rs 72000 crore were spent in the form of subsidies in 2015-16 alone. These burgeoning subsidy bill compels the government to raise money from additional taxes in the budget, which will further raise problems for the common man.
What are the steps to be taken to revive Agriculture?
• The proposed Model Agricultural Land Leasing Bill by the T Haque Committee of NITI Aayog should be enacted to secure ownership rights of land owners without compromising on security of tenure to tenants.
• In the Budget 2017, Arun Jaitley should declare investments aimed at improving agricultural productivity as tax free.
• This measure will encourage farmers with sufficient financial resources and land to invest in mechanization, high yield variety seeds, etc.
• In order to better target subsidies, the Direct Benefit Transfer (DBT) Scheme should be expanded to fertilizer subsidy programme.
• As the policy experts suggested, Agricluture should be moved from the State List to the Concurrent List in the Seventh Schedule of the Constitution. This measure will be a big relief for State governments which are dependent on the Union Government for financial resources.
• In order to ensure income security for farmers, allied activities of agriculture must be given enough attention. As announced by Prime Minister Narendra Modi in April 2015 in Toronto, India should take up the challenge of ‘four-coloured’ revolution — Green (agriculture), White (dairy farming), Saffron (energy) and Blue (tapping marine resources) to achieve all-round development.
• Mechanization of agriculture is still a distant dream. Necessary steps should be taken in the form of tax incentives to manufacturers and farmers to realize this goal.
• Indian farmers are no longer insulated from demand and supply fluctuations in the global market. Hence, the government should take necessary steps to educate and inform farmers about the global trends and policies on a periodical basis.
• In a nutshell, it can be safely concluded that if at all India wants to achieve faster and more inclusive growth, the revival of agriculture is a must.
Food security is an essential component of national security. In its formative years, independent India literally lived from ship to mouth. India was dependent on wheat imports from the USA under the US Public Law 480. From that stage of apathy, India transformed herself as a net food exporter by successfully implementing initiatives under the Green Revolution.
However, we should not be content with our past achievements. So far, the focus was on incremental changes in quantity. From now on, the government should concentrate on qualitative changes in order to create a virtuous cycle for the farming community.
Let us hope the upcoming Budget 2017 will come up with expected solutions to the problems faced by the Agriculture sector.