Home / Politics / Policy /  How the Krishi Kalyan Cess funded flagship schemes for farmers

New Delhi: Krishi Kalyan Cess, a 0.5% cess on all taxable services introduced last year to support a drought-hit farm sector, will raise 9,000 crore in 2016-17, budget documents presented in the parliament on Wednesday showed.

The central government is spending money from this corpus on crucial schemes like crop insurance and interest subsidy on crop loans. The Centre also expects to collect 20% more through the same cess in 2017-18, adding up to 10,800 crore, which will again be spent on these schemes.

In 2016-17 (according to revised estimates) the cess helped pay 27% ( 3596 crore) of the 13,240 crore spent on the Pradhan Mantri Fasal Bima Yojana (PMFBY), the Prime Minister’s flagship crop insurance scheme. As per the budget speech by finance minister Arun Jaitley, PMFBY will cover 40% India’s farmers by 2017-18 and half of them by the following year.

The other major scheme which the cess is helping fund is the interest subsidy on short-term crop loans taken by farmers. According to the revised estimates (RE) for 2016-17, the cess funded 5204 crore (nearly 40%) of the 13,619 crore spent on interest subsidies.

According to the budget estimates (BE) for 2017-18, of the 10,800 crore expected corpus, a staggering 9000 crore will be spent on crop insurance. PMFBY has a budgeted allocation of 9000 crore next year, and therefore, the flagship scheme is likely to be entirely funded by the cess. The remaining 1800 crore will be spent on interest subsidies.

How much did the cess contribute to the total spending under the agriculture ministry? In 2016-17 (RE), nearly 19% of the agriculture ministry’s spending of 48,072 crore was financed by the cess. In 2017-18, over 21% of the ministry’s budget of 51,026 crore will come from the cess.

“The increase in the budget for the agriculture ministry (for 2017-18) is to the extent that the government expects cess collection to rise," said Himanshu, associate professor at Jawaharlal Nehru University, Delhi, and a columnist with Mint.

The numbers confirm this. The ministry’s budget saw a 6% increase, amounting to 2,954 crore, while cess collection is expected to rise by 1,800 crore. This means government allocation for the farm ministry rose by just 1154 crore.

“The finance minister in his budget speech said tax revenues are likely to rise by 17% this year, but the agriculture ministry’s budget, despite the stress farmers are going through, did not see a proportionate increase," Himanshu added.

While the cess helped fund the insurance and interest subsidy schemes partially, it also gave the finance ministry some leg room to increase allocations under specific schemes.

Funding for micro irrigation scheme (Per Drop More Crop) rose 71%, from 1990 crore in 2016-17 (RE) to 3,400 crore in 2017-18 (BE). Funds for national horticulture mission rose by 40%, from 1,660 crore to 2,320 crore, budget numbers show.

Similarly, provisions for mechanisation and agriculture marketing schemes were raised by 47% and 11% respectively.

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