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To increase market access to farmers, government to implement the unified agriculture marketing scheme, which envisages a common e-market platform that will be deployed in 585 wholesale markets.
To increase market access to farmers, government to implement the unified agriculture marketing scheme, which envisages a common e-market platform that will be deployed in 585 wholesale markets.

Saving the farm

The fertilizer subsidy of `70,000 crore for the next fiscal is marginally lower than the `72,437 crore allocated for the current fiscal but is higher than the estimated requirement of around `55,000 crore

Expectations: High

Delivery: Good

Measures:

® The fertilizer subsidy of 70,000 crore for the next fiscal is marginally lower than the 72,437 crore allocated for the current fiscal but is higher than the estimated requirement of around 55,000 crore. The direct transfer of fertilizer subsidy to be done on a pilot basis in select districts.

® More funds for the development of irrigation facilities—aims to provide irrigation facilities for 2.85 million hectares (ha). Fast-tracking of 89 held-up irrigation projects. A dedicated irrigation fund will be created in NABARD.

® Crop insurance gets 5,500 crore allocation. The target for agriculture credit is raised from 8.5 trillion in 2015-16 to 9 trillion next year. To provide 15,000 crore as interest subvention for borrowers (farmers).

® Target to cover all 140 million farm holdings under the soil health card scheme by next year (March 2017). To increase crop yields in rain-fed areas, government to promote organic farming—aims to bring 500,000 acres under organic farming in three years.

® To increase market access to farmers, government to implement the unified agriculture marketing scheme, which envisages a common e-market platform that will be deployed in 585 wholesale markets.

® Has set an ambitious target to double the income of farmers by 2022. The combined allocation for agriculture and irrigation sectors doubled to 54,212 crore. A cess of 0.5% has been levied on services to finance agriculture activities.

® A sharp increase in the allocations for gram panchayats and rural roads. Funds for rural employment guarantee scheme raised by 10%.

Impact:

® The incremental subsidy allocation will benefit urea companies as a portion of their prior period receivables will be paid. The companies will see a commensurate reduction in the working capital requirements and interest costs.

® Development of irrigation facilities, push to crop insurance will help lower the impact of crop and monsoon failures. Interest subvention can help lower finance costs.

® A rise in farm credit target and a higher allocation for employment guarantee scheme to help improve funds flow into the rural sector. To derive the intended benefits, the government has to ensure that the financial targets are achieved. At present, both banks and farmers are reluctant to lend or borrow due to the weak financial profiles and farm sentiments.

® A greater thrust of soil health card scheme will educate farmers about the nutrient level of the soil. This can drive farmers towards the judicious usage of fertilizers. Also, the schemes for organic farming will improve soil health and productivity.

Stocks in focus:

® Shares of fertilizer companies—National Fertilizers Ltd, Rashtriya Chemicals and Fertilizers Ltd and Chambal Fertilisers and Chemicals Ltd—lost around 3%. A lack of clarity on the rationalization of urea prices has been a dampener.

® Also, there is no plan on how the government plans to clear pending subsidy receivables, estimated at almost 30,000 crore. In view of the under-budgeting of subsidy, ICRA Ltd estimates the liquidity profile of the industry to remain “weak", with spikes in short-term borrowings in the second half of the fiscal.

® A higher spend on the irrigation sector is expected to benefit irrigation equipment makers such as Jain Irrigation Systems Ltd and EPC Industries Ltd. But weak market sentiment and a lack of visibility on order inflows sent stocks lower by 3-4% on Monday.

R. Sree Ram

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