More of the Same
by Shashanka Bhide February 4, 2017
This Budget comes in the wake of a good monsoon in most parts of the country. With two successive years of poor rains, 2014/15 and 2015/16, the 'normal' monsoon in 2016/17 provided much relief to farmers. There are indeed parts of the country where the monsoon this year, the south west or the north east, has been in deficit. The official Advance Estimates of GDP have been strengthened by a projected growth rate of 4.1 per cent for the agricultural and allied sector in 2016/17. This alone is not anywhere close to the pace required to double farmers' income in the time frame indicated in last year's Budget. The challenge for the Budget this year has been to get closer to a strategy that can raise farm sector's income significantly on a sustained basis for the next five years. The challenge for the farm sector has been to operate in an environment where output growth is uncertain and prices are also uncertain, while the input prices rise and size of the land holdings gets smaller. Of course, the policy challenge is not merely to enhance farmer's income but also ensure food security.
What new initiatives or strategies has the Budget held out for agriculture? Has the Budget altered the prospects of prices for inputs or output? Has it altered the incentives for productivity or investments? Has it changed the demand conditions? Perhaps the annual Budgets themselves do not articulate the entire policy framework for agriculture, but they put money on key strategies.
The Budget retains the core strategies of the past - irrigation, micro irrigation, credit, crop insurance, science and technology for agriculture - whether it is management of soil for better productivity or now digital technology for marketing and rural infrastructure for better connectivity with the markets. There is greater emphasis on creating national markets for the farm produce. There is also a move to push contract farming, to gain from potential benefits of technology that may be realised. There is no clear emphasis on the diversification that is unfolding and holds the promise for raising farm income. In fact, innovativeness of farmers is likely to be reflected in diversifying their output to earn more from their lands and water resources. Innovativeness will also be reflected in the adoption of mechanisation as labour is likely to find livelihood opportunities in the sectors that are growing faster than agriculture and that may offer new skills that help them get higher income. The Budget appears to hold the promise of a steady growth of the sector but not sharp acceleration in growth. However, a steady growth prospect will also provide an environment for innovations and enterprise. The Budget does point to the potential for increasing scale of operations, whether it is in production or marketing.
At a macro level, the Budget has not changed the environment for the farm sector significantly. The significance of the new initiatives would be in the way they are implemented. Clearly, agriculture and rural sectors vary a great deal across the country and even within the states. The impact of overall policies will depend on how they are tailored to specific conditions at the local level.
The budgetary allocation for rural, agriculture and allied sectors has been projected to increase by 24 percent in 2017/18 over the previous year. At Rs1,87,000 crore or spread over about 200 million hectares of cropped area, it is less than Rs9,350 per hectare. Not all this money is directly related to agriculture, but it is significant amount of expenditure with perhaps a lot more being spent from the budgets of the state government. In comparison, the Gross Value Added from agriculture and allied sectors in 2016/17 Advance Estimates is Rs23,20,000 crore, which includes payments to wages besides returns to cultivators. In relation to total expenditure of the Central government at Rs21,50,000 crore, the spending on rural and agriculture and allied sectors is less than 10 per cent, well below the share of agriculture allied sectors in the overall GDP at 17 per cent. Improving efficiency of this expenditure would certainly have significant impact on the agricultural sector.
Among the agriculture related subsidies, food subsidy is set to rise but fertiliser subsidy budget is retained at the same level as the previous year. This may provide some assurance that the overall agricultural output prices may not see a deceleration with prospects of some increase in input prices as well. The more tangible impact on output prices will be from the MSP, that will come only later.
The budget clearly aims to spend on poverty alleviation programmes, rural assets through the MGNREGA scheme, rural roads, rural electrification, rural local bodies and agricultural markets. It will also strengthen agricultural cooperatives, improving their IT infrastructure.
Overall, this budget has relied on strengthening strategies for agricultural progress articulated in the previous year, rather than new initiatives. The gains that will be made in the non-agricultural sector and impact of this on the demand for agriculture's harvest will spur agriculture's fortunes through larger and more efficient marketing infrastructure and improved energy and transport infrastructure. ~
The opinions expressed here are personal
The writer is Director, Madras Institute of Development Studies