Budget and farm distress: Budget 2019 should be a balancing act

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Though, in view of the impending elections, the Centre may get tempted to yield to populist demands, it must ensure that reforms whose effects will be visible over the long term are not given the short shrift.

Thus, Rhythu Bandhu doesn’t directly benefit lessee cultivators or the landless agricultural labourers.

Thus, Rhythu Bandhu doesn’t directly benefit lessee cultivators or the landless agricultural labourers.

Budget 2019 is just few days away, and as expected, farmers and people having interest in the agriculture sector are eagerly hoping to hear some good news. Measures to boost the already troubled agriculture sector are likely to get top priority across the spectrum in view of the sensitivity of Indian agriculture in the political economy. Debates and discussions around issues relating to farm distress throughout the country have heightened the expectations manifold.

In the run-up to the general elections later this year, and following the events in the aftermath of recently -concluded elections in a few states, the attention is on farm-loan waivers. However, agriculture-policy analysts, through empirical evidence, have opined that such ‘populist’ write-offs could be a temporary redressal, but not a permanent solution. However, considerations of quick political dividends are expected to dominate logical, evidence-based policy guidance, as has happened in the past.

Budget 2018 had a series of measures to boost the agriculture sector. Promising minimum support prices (MSP) of at least 50% higher than the cost of cultivation for major crops (both kharif and rabi) was a landmark decision of the Union government. However, the implementation of this has left much to be desired. The lack of procurement of crops other than paddy, wheat and, to some extent, cotton, is skewed against much-hyped boost to nutri-cereals like sorghum and millets (which saw the highest-ever increase in MSP). Operation Greens (to ensure remunerative prices for perishables like tomatoes, onions and potatoes), another much-hyped scheme, has also not taken off. The GrAM (Grameen Agricultural Markets) initiative, intended to develop and upgrade rural haats to benefit primary producers at the grassroots, has also not percolated to the ground. A slew of measures to promote FPOs and FPCs to de-intermediarise the agri value-chain are yet to bring desired results. Electronically linking the GrAMs to the e-NAM platform, and exempting them from the regulations of APMC Act, hasn’t happened, though such a move offers fantastic opportunities to both farmers and consumers/bulk-purchasers. Several announcements, like extending the facility of Kisan Credit Cards (KCC) to fisheries and animal husbandry farmers; setting up a Fisheries and Aquaculture Infrastructure Development Fund (FAIDF) for the fisheries sector and an Animal Husbandry Infrastructure Development Fund (AHIDF) for financing infrastructure requirement of the animal husbandry sector; setting up of state-of-the-art testing facilities in all the 42 Mega Food Parks, etc, are yet to see light of the day. All these are measures in the right direction. Agriculture being a state subject, proactive and enhanced participation of the states continues to be key for the success of any pro-farmer initiative. This must be kept in mind while declaring any stimulus for the agriculture sector in the forthcoming budget.

Going by political sentiments and consequent developments, a populist, pro-farmer budget this time seems a no-brainer. Our sensible expectations, however, would be to revitalise the stressed farm sector for the long-run, while offering ‘inevitable’ sops as a temporary measure.

Let’s discuss the obvious considerations of government of the day (at the Union level as well as in the states) for wooing the farming community, in view of the impending elections. Several studies hold that farm-loan waivers can’t be a sustainable solution, given the exclusion of a significant chunk of small and marginal farmers and agricultural labourers; it also puts a heavy burden on the public exchequer even as the money used to cover such waivers could have been invested in raising farm and rural productivity. However, political considerations may dominate logical, economically-sound recommendations, and therefore, an income-support scheme would be seen as advantageous in the medium-term. The KALIA (Krushak Assistance for Livelihood and Income Augmentation) scheme of Odisha that addresses the needs of small and marginal farmers (besides assisting the sharecroppers/lease-holders as well as landless labourers) seems to be an improved version of Telanagan’s Rhythu Bandhu. While KALIA offers a lump sum amount to small and marginal farmers/agricultural and agricultural labourers/lessee farmers, Rhythu Bandhu gives all farmers (irrespective of land-holding) a direct, per-acre support. Thus, Rhythu Bandhu doesn’t directly benefit lessee cultivators or the landless agricultural labourers. Moreover, input subsidies on seeds (from various government schemes) fertilisers and on power/irrigation continue, distorting the core objectives of such direct financial support initiatives.

It would be a challenge for the Union Finance Minister to strike a balance, if at all an income-support scheme for farmers is rolled out pan-India. The bottomline, however, would be to target existing subsidies, may be through DBT (Direct Benefit Transfer) and phasing out these subsidies with clear-cut policies on entitlements of the benefits (say, basing fertiliser subsidies on farmer-category and soil health). Enhancing the resource-use-efficiency will raise productivity.

In the short- to medium-term, the budget should also focus on building the capacity of institutions for enhanced procurement of the marketable surplus at MSP and also, linking the farmers to markets through alternative mechanisms such as price-deficiency schemes (AASHA has since been launched). Agri-market reforms should be the top the priority, including APMC reforms, promotion of contract farming and increased involvement of private sector in the procurement, processing and agri-logistics in the entire value-chain. High quality-standards for farm produce would raise income of farmers and, therefore, enhanced investments in this area will be rewarding. The Centre has recently declared a farm export policy; it’s stability and consistency would definitely be in the interest of those growing agri-commodities that conform to global standards. Necessary amendments in the Essential Commodities Act have often been suggested for positive gains for the farm sector. The Union Budget should focus on measures that will help implementation of already-declared schemes and policies. For example, women self-help groups (WSHGs) that are already active in many parts of the country, could be mobilized in a mission mode to link producers to markets through capacity building, financial literacy and managerial abilities. FPO penetration in rural areas is yet to make headway, and can’t bring immediate results everywhere.

Raising farm productivity through traditional technology transfer models has been the strategy of governments over the years. However, increased R&D spending is not commensurate to the desired benchmarks. To realise the goal of Doubling Farmers’ Income (DFI) by 2022-23 and to sustain satisfactory levels of agricultural production in a changing-climate scenario, enhanced investment in agricultural research and rural infrastructure is more desirable than ill-targeted input subsidies (including farm loan waivers). Reinvigorating the moribund agricultural extension system with infusion of digital-agriculture could also be a focus area that will have positive impact. Moreover, priority to nutrition-security over the food-security should be clearly addressed through a special mission. Modern agriculture is one of the largest contributors to greenhouse gas emissions and, therefore, a well-designed initiative to sustain agricultural growth in the Anthropocene would make India a global leader in mitigating impacts of climate change. Whether the government pushes various pending reforms measures to boost the farm sector or plays to the gallery for political mileage, or strikes a balance in the interim Budget is something all stakeholders are looking at with much interest. We only wish that the measures that will be eventually announced benefit small and marginal farmers and don’t harm the agriculture sector structurally.

About the author:

Dr Arabinda Kumar Padhee
Director, Country Relations and Business Affairs

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