Credit, ease of farming, trade terms and many more expectations that agriculture has from this Budget
The paradox in India's farm sector is noticeable only when one reads through the following two statements carefully:
a. Over 50 percent of Indians depend on Agriculture for their livelihood
b. The contribution of agriculture to India's GDP in 2017-18 stood at 17-18 percent. Factors such as declining rural consumption, paucity of funds, declining monsoon patterns, and insufficient returns from farming, only result in an equation that suggests a major agrarian distress. The economic consequences of a distress in the agrarian sector were visible in the fourth quarter GDP results announced a month ago. India's GDP for Q4FY19 grew by 5.8 percent.
A year ago, it had grown at 8.1 percent. Agricultural growth was recorded at 2.9 percent. Productivity in the farm sector, a year ago, was recorded at 5.9 percent. Agriculture certainly received the policy-makers attention and was the buzzword during the recently conclude election season as well as the interim budget.
The interim Budget 2019-20 touched on several areas such as an increase in outlay on schemes like PM-Kisan, price support, agriculture mechanization, the Green Revolution, etc. During the budget the total allocation across Central Sector Schemes and Centrally Sponsored Schemes in agriculture has been doubled from Rs 67,800 crore to Rs 129,550 crore.
However, the distress is still here, and haunts rural markets.
A distress in agrarian sector is worrisome on several accounts. Firstly, tepid agriculture results in an immediate rural market distress. Furthermore, half the country that depends on farming as a means of livelihood report of either joblessness or are starved of credit. It must also be noted that several sectors that depend indirectly on agricultural income too report of a bleak output. For instance consumer durable, retail, and even automotive sectors are hit when farming takes a backseat. Hence, farm distress as a narrative is not just a rural issue, it is the Corporate India's issue too.
Dr. Arun Singh, Chief Economist at Dun & Bradstreet shares that the government was likely to announce higher spending for agricultural sector in the Union Budget for 2019.
In a note he explains, "Considering probability of below-normal monsoons, already prevailing issues in the farm sector across the value chain and the government’s aim to double farmer’s income by 2022, the government needs to introduce certain structural reforms such as targeting support to small and marginal farmers, development of agricultural market and improvement in agricultural productivity.
" He also lists a three pronged strategy for policy-makers:
Support to small and marginal farmers: To support this segment, the government may introduce interest-free Kisan credit cards this year. Special redressal mechanism/scheme could be formulated to address farmers in 29 districts, most vulnerable from high climate variability and low income.
Development of agricultural market: The government is likely to introduce warehousing schemes at village and National level to build an efficient storage infrastructure. A National Warehousing Grid along the National Highways may also be introduced. Agricultural marketing reforms need to go beyond e-Nam initiative; the 2nd phase of e-Nam converging the supply chain from farmer to retailer/consumer is expected to be rolled out.
Improvement in Agricultural Productivity: To improve agricultural productivity, soil health card initiative needs to be strengthened by providing unit-level testing facility and increasing quality control of soil-testing labs. The government may promote micro and drip irrigation and increase coverage of crops under farm insurance scheme.
Conserving Water: The interim budget saw the government announce the Pradhan Mantri Kisan Samman Nidhi scheme for farmers. RG Agarwal, Chairman at Dhanuka Agritech believes that a similar scheme should be announced for issues such as water management and conservation, given the worsening water crisis.
"Unmonitored use of water for irrigation has led to severe depletion of groundwater levels. The newly formed Jal Shakti Ministry should announce rational measures to deal with the water crisis. It must focus on completing the pending irrigation projects and give impetus on promoting drip/ sprinkle irrigation among farmers with the required support," adds Agarwal.
Elaborating on Dr. Ashok Dalwai committee's findings on 'Doubling farm incomes', he says, "the cost of pesticides usage in entire agriculture process is mere 0.4% but it should be noted that if pesticides are not of good quality then the rest 99.6% investment in agriculture may go waste. As such special focus should be to ensure supply of quality pesticides to farmers. GST on pesticides should be reduced from 18 percent to 5 percent in line with fertilizers and other agri-products.
" Agrawal also suggests that the government should consider offering measures that would help farmers transport their fresh produce through four-wheelers to urban markets directly to consumers, thereby avoiding middle-men.
Resolving GST issues
Vishal Shah, Founder & MD, Storia Foods & Beverages explains that drought along with a decline in rural demand has hit rural markets. Shah suggests long-term measures such as loan waivers and cash transfers to farmers. "We should move away from consumer to producer-centric price policy."
"Resolving GST issues related to Farmers Producers Organisations, incentive for agro-processing units and enhancing investments in the R &D in the agriculture sector should be focused. The government should consider investing in technology that could make water management more efficient. Government’s focus on improving agricultural productivity with an emphasis on organic food forms will further strengthen the ambitious vision of a healthy India. This will promote F&B manufacturers, food service providers, and consumers to embrace natural and healthier products and lifestyles," he adds.
Besides core-agriculture, budget expectations have also come from some of the unexpected quarters. The interim budget increased outlay on schemes such as Rahstriya Gokul mission to Rs 750 crores for augmenting milk production. Furthermore, animal husbandry and fisheries sector appreciated a 2% interest subvention scheme on loans through Kisan Credit Card scheme.
For this budget, a poultry association from Karnataka has sought poultry farming activities to be categorized under agriculture to receive Income tax exemptions.
Karnataka Poultry farmers and breeders association made its representation to the Finance Minister. As part of a recommendation, it said, "The Government should restore section 80JJ of the Income Tax Act 1961 giving income tax exemption for the poultry sector; allow deduction under section 80JJAA for workers in poultry farms and not just for those employed in a factory; and to exclude tax deduction at source (TDS) for poultry rearing farmers. Presently, TDS of one / two per cent is made to those who contract farmers for poultry rearing."
Gaurav Haran, CEO at MilkLane, a milk collection and supply platform, is hopeful that the government will offer incentives to the sector for promoting higher consumption.
"Tax reductions in value-added dairy products would accelerate higher adoption thereby encouraging more investment into product’s research and development that can further help dairy consumption. Incentives to SMEs in building cold chain infrastructures, that are critical for the sector, would help reduce wastage and improve the quality of the products. In addition to that, enable R&D centers and pilot scale facilities to support innovation into new products and packaging formats," he added.
Solving the Credit Crunch:
Micro-financial institutions that act as institutions of last resort in financially empowering the rural poor have been struck with the credit crunch.
Dr. Kuldip Maity, MD & CEO of Village Financial Services (VFS), a micro-finance company based in Kolkata, says, "Despite the success of MFIs in empowering the rural poor, access to low-cost fund still remains a concern. There is a dire need to bring down the cost of funds to micro-finance institutions in order to reduce the cost of loan to rural poor. While MFIs lend without collateral, the fund that they get from the banks or other Financial Institutions comes against collateral. Thus if we see from the perspective of risk cost, MFIs shoulder the entire burden in a delivery that’s meant to benefit the poor.
Most of the issues surrounding farm distress, joblessness, tepid GDP numbers, credit crunch and other sectoral issues are certainly linked. And, hence the Finance Minister may be prompted to juggle between several of them to achieve a fine balance.
Given Nirmala Sitharaman's background as Commerce Minister and her ample knowledge of the trade sector, a juggling-act is certain. That, between achieving fiscal prudence and the getting India's biggest employer, agriculture, back on track.