Home / Budget 2019 / Budget Expectations /  What Budget 2020 can do for the agriculture sector

Agriculture in India constitutes 14% percent of GDP, 44 percent of employment and is the backbone of the rural economy but contributes only 16% of Gross Value Added (GVA)1. Hence, government intervention and assistance is highly essential to facilitate implementation of both policy and structural reforms to address some of the key challenges in agriculture. Rising incomes and changing consumption patterns are expected to continue the increased demand in horticulture and proteins which is likely to have a cascading impact on inflation which is a key focus area for the government. Hence, increasing storage capacities, improving availability of pulses, reduction in import dependence in areas like oilseeds and enhancing farmer livelihoods will be some of the key areas that the budget could target.

In the forthcoming budget it is expected that the government would look at Direct Benefit Transfer (DBT) for agri input subsidy using Aadhaar linkages so as to eliminate leakages. This would also help in putting money directly in the hands of the right beneficiary. The DBT of input subsidy would also encourage farmers to follow the proper package of practices with respect to input usage and not go only by subsidy considerations thereby leading to higher productivity.

The government may consider favorably tweaking the quantum and coverage of the Pradhan Mantri Kisan Samman Nidhi (PMKISAN) scheme which provides a guaranteed income to small and marginal farmers. At the same time, the government may consider providing incentives and increased budgetary provisions for agri extension services and programs, preferably in PPP mode, which are essential if the aim of “doubling farmers’ income" is to be achieved. The government can facilitate spurring of capital formation by incentivizing agri term-loans via interest subvention or credit guarantee fund covering a wider range of crops and agri industries. Extending the ambit of such schemes has the potential to lead to greater gross capital formation in agriculture across the spectrum and not be limited to only the major crops.

Another step would be to consider broadening the purview of PM Fasal Bima Yojana (PMFBY) as currently it covers 3 major types of crops, food, oilseeds and horticulture crops, which constitute only 30% of the total crop loans given by banks1. The PMFBY could bring more crops under its portfolio which would widen the farmer base with access to this scheme. With the current government highlighting water as the key focus area in this term, it could start a provision to audit irrigation and groundwater management, implementing standard operating processes to rationalize water usage. This could not only lead to efficient water usage for crops but would also facilitate wider access to irrigation facilities for the whole farmer community.

Agricultural productivity has a positive correlation with level of farm mechanization. With the steep rise in labor cost, the inflection point where mechanized farming is cost-effective is imminent in next 8-10 years. Farm mechanization constitutes a key area wherein policy reforms in the form of incentives and interest subvention schemes are expected in the upcoming budget. The government may also increase the ambit of the Rashtriya Krishi Vikas Yojana (RKVY) to support rural storage infrastructure which will enable small producers to hold the produce till market prices are remunerative enough to sell. This will help achieve the 2 prong benefits of augmenting farmer income as well as minimizing post-harvest losses and preventing distress sale. An important aspect of the rural supply chain is storage infrastructure especially cold storages. Policy measures that can be expected to accelerate growth in the cold chain sector are innovative rural financing models to provide capital and viability gap funding as well as use of alternate fuels that are locally available to reduce cost.

Apart from this, extending such policy reforms towards efforts in increasing infrastructural support in agriculture is another focus area. Infrastructural gaps like lack of scientific storage solutions, last mile connectivity and lack of market access plague Indian agriculture. This issue may be addressed in the budget by increased allocation to creating agri-infrastructure as well as promoting incentives schemes and tax holidays for PPP in infrastructure projects catering specifically to agriculture. Also, including credit for agri-infrastructure projects under the direct lending of Priority Sector Lending Norms would provide an attractive option for private players’ entry.

A similar approach could also be applied to the food processing sector wherein the mega food park scheme, which currently covers Greenfield projects, could be extended to bring the existing food processing units under its ambit. This measure could assist in rapid growth of the sector through the extension of this successful scheme. At the same time, such schemes and measures need to be supplemented with budgetary provisions for setting up of new and upscaling existing R&D facilities and skill development centers so as to implement the best practices & produce trained manpower.

With the finance Minister emphasizing on “Gaon-Garib-Kisan" (Village-Poor-Farmer) as the cornerstone of policymaking, the upcoming budget may see increased attention on the agriculture sector with a two pronged approached to policy reforms and technical intervention. The former could concentrate on farmer welfare, structural reforms and doubling farmer income whereas the latter could see more focus on increasing productivity, efficiency and output across the agriculture business value chain.

The author is Partner, Deloitte India.

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