Budget 2017: The farm sector impact

Despite a reduction in costs necessitating a lower subsidy requirement, govt has retained subsidy at current-year levels, which can help reduce previous years’ dues


Higher spend on MGNREGS and rural roads can increase employment opportunities and help create productive assets for rural areas. Photo: Mint
Higher spend on MGNREGS and rural roads can increase employment opportunities and help create productive assets for rural areas. Photo: Mint

EXPECTATIONS: HIGH

DELIVERY: HIGH

Measures:

Fertilizer subsidy for 2017-18 is at Rs70,000 crore, similar to 2016-17. According to ICRA, subsidy for P&K (phosphorous and potash) fertilizers in the nutrient-based subsidy scheme has been hiked marginally.

Agricultural credit target for 2017-18 is fixed at Rs10 trillion, an 11% increase from the 2016-17 target of Rs9 trillion.

Budgetary provision for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is at Rs48,000 crore, up from the Rs47,499 crore revised estimate for FY17.

Total allocation for rural, agriculture and allied sectors is Rs1,87,223 crore, 24% higher than a year ago.

Coverage of crop insurance scheme Fasal Bima Yojana is to be increased from 30% of cropped area in 2016-17 to 40% in 2017-18 and 50% in 2018-19. Provision of Rs5,500 crore for this scheme in 2016-17 was raised to Rs9,000 crore.

A dedicated micro irrigation fund is to be set up at the National Bank for Agriculture and Rural Development (NABARD), with an initial corpus of Rs5,000 crore.

Rural roads construction scheme Pradhan Mantri Gram Sadak Yojana (PMGSY) gets Rs19,000 crore. Adding the contribution of states, an amount of Rs27,000 crore is budgeted to be spent on PMGSY in 2017-18.

Coverage of the National Agricultural Market (e-NAM) will be expanded from the current 250 to 585 markets to enable farmers to get better prices.

The government to support computerization and integration of Primary Agriculture Credit Societies (PACS), which act as the front end for loan disbursements.

Government plans to integrate farmers who grow fruits and vegetables with agro processing units for better price realization and reduction of post-harvest losses.

A model law on contract farming is to be prepared and circulated among states for adoption.

An expert panel is to be constituted to study and prepare a framework to integrate spot and derivatives markets for commodities.

Impact:

Despite a reduction in costs necessitating a lower subsidy requirement for 2017-18, the government has retained subsidy at current-year levels. This can help reduce previous years’ subsidy dues which are pegged at around Rs32,000 crore. According to analysts, subsidy dues can see notable reduction, though they may not be wiped out completely.

Hike in subsidy for P&K fertilizers is positive for complex fertilizer manufacturers and traders who are facing pressure on realizations and suffering inventory losses, according to ICRA.

Higher spend on MGNREGS and rural roads can increase employment opportunities and help create productive assets for rural areas.

Higher credit target for agriculture and computerization, and integration of Primary Agriculture Credit Societies to increase fund flow in rural areas. Model law on contract farming will help streamline credit flow.

Focus on irrigation and crop insurance to help mitigate climate vagaries.

A robust market framework for commodities can provide better price signals and benefit farmers, though risk of volatility increases as well.

Stocks in focus:

Coromandel International Ltd, Deepak Fertilisers and Petrochemicals Corp. and National Fertilizers gained in the range of 4-6%. The hike in subsidy for P&K fertilizers is expected to benefit makers of complex fertilizers.

Shares of Rashtriya Chemicals and Fertilizers Ltd and Chambal Fertilisers and Chemicals Ltd lost in the range of 1% to 2.7%. According to ICRA, the continuing backlog in fertilizer dues can weigh on the financial profile of the sector.R. Sree Ram

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