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Budget 2018: Can govt help alleviate rural distress

Anilesh S. Mahajan     January 30, 2018

It is a board meeting with a difference - weather beaten farmers, seated in the village square in Aurangabad village in Uttar Pradesh's Sitapur district, sipping cups of tea. These are members of the local Farmer Producer Organisation (FPO), one of 800 in the country, set up under the auspices of the Small Farmers Agri-business Consortium (SFAC), promoted by the Ministry of Agriculture and registered under the Companies Act. FPOs are a cross between cooperative societies and private limited companies, in which farmers come together to increase their bargaining power in the market.

The Aurangabad FPO's primary focus currently is honey - collecting it from members within a 20 km radius, analysing, processing and selling it. A nearby shed houses the FPO's office, a small laboratory, a processing unit (still in the making) and an assembly line. "Earlier when we sold our honey individually, we would get around Rs 95 per kg in a good season," says Mirza Baig, the FPO's Chairman. "But now, by working together, we are getting offers of Rs 150 per kg."

Symptoms of rural distress are clearly visible in India, most recently showing up in the Gujarat assembly election in December last year, where but for the support it garnered in urban centres, the BJP - ruling for 22 years - would have been pushed out of power. Prime Minister Narendra Modi had famously promised to more than double farmers' annual incomes in seven years - from Rs 96,703 in 2015/16 to Rs 219,724 in 2022/23; but it seems doubtful given the rate of progress. There have been no dearth of schemes and concessions for farmers, but they have literally so far borne little fruit.

Farmers get concessional electricity, and cooking gas connections under the Pradhan Mantri Ujjwala Yojana have been delivered to them on a war footing. Five states have waived farm loans in the past year, but is this kind of support sustainable? The farm loans' waiver has already cost the country Rs 107,000 crore - or 0.65 per cent of the gross domestic product (GDP). Last year, the Budget allocated a whopping Rs 187,223 crore to agriculture, a 24 per cent jump over 2015/16, but it does not seem to have had sufficient impact. Urbanites make up only 35 per cent of the population, yet urban contribution to GDP has been increasing from 45 per cent in 1990 to 63 per cent in 2014 to 72 per cent last year, while the rural share has correspondingly declined. The reason is that farm incomes are simply not increasing, with agricultural growth hovering around an average of two per cent.

A major reason for the slow growth is the waste of perishables, mainly due to shortcomings of infrastructure in delivering from farm to fork. The Central Institute of Post-Harvest Engineering and Technology - under the Indian Council for Agricultural Research - has estimated the annual loss at various stages of harvest and post-harvest at `92,651 crore. "The bulk of it is in perishables," says Tajamul Haque, former Chairman of the Commission for Agricultural Costs and Prices. "This primarily hits the farmer."

Allowing foreign investment into multi-brand retail would indeed give a big boost to the food processing market, considering that 76 per cent of all business in multi-brand retail comprises food items, direct and processed, as investors would pour funds into building infrastructure such as warehouses and cold chains. But fear of the impact of this step on mom-and-pop stores keeps staying the government's hand.

Long Way to Go

It will be one of Finance Minister Arun Jaitley's primary tasks in the coming Budget to try and alleviate rural distress; encouraging FPOs in a big way could well be a major part of the solution. For the 120 million farmers in India, so far there are only 800 FPOs. Madhya Pradesh has the largest number of FPOs at 150, followed by 120 in Karnataka and another 100 in Maharashtra. Even the ones that exist have serious constraints - lack of access to cheap capital, absence of tax breaks and opportunities for acquiring the skills required to run an FPO, and lack of entrepreneurial spirit among farmers.

"FPOs attract 30 per cent corporate tax from the first year like any other company, which is also a big disincentive for farmers," says Nasir Quereshi, volunteer from the Bhopal-based NGO, Centre for Advance Research and Development (CARD). He, at the request of local off-grid operator Smart Power Ltd, has been camping in Aurangabad for the last six months to acquaint the farmers with - and link them to - various schemes of the state and central governments, showing them how funds can be procured, getting them regulatory approvals and training them to market their produce effectively.

Even when facilities are available, it is sometimes difficult for farmers to avail them. Under the Pradhan Mantri Kaushal Vikas Yojna, kaushal kendras (skilling centres) have been set up in many district headquarters, but most farmers are not in a position to camp there for extended periods leaving their fields untended. Not surprisingly, enthusiasm for FPOs is lukewarm.

"Other farmers have not been as lucky as those in Aurangabad to get the services of an organisation like CARD," says Vishwanath Rao, a farmer leader in Maharashtra. Navjot Singh, a farmer from Sirsa, Haryana, has been working with fellow farmers to produce fruit pulp. "Capital is a big issue," he says. "After the loan waivers, banks are just not interested in giving more subsidised loans under the subvention scheme."

There is always the fear that the loan taken to invest in technology could turn into a debt trap for all members of the FPO if the produce does not fetch the price expected. Surjit Singh, a progressive farmer from Sonepat, Haryana, had the idea of joining hands with his neighbours to market tomato puree. "In a good season, tomatoes can be sold at `15 a kg, but in bad ones the price falls so steeply that taking them to the local mandi becomes unviable," he says. "Yet the price of tomato puree is constant in seasons good and bad." But the idea came to nothing. "I tried to convince people to start an FPO to process tomatoes and market the puree, but they were afraid of incurring debt and it didn't work out," he adds.

Forthcoming Proposals

The forthcoming Budget may well include a proposal to include FPOs under the Start-up India Mission, which would allow them a tax holiday for the first three years as well as access to cheaper funds. More funds could also be made available through the SFAC. "We want 10 per cent of small farmers to become part of FPOs in the next four years," says an expert closely associated with the Budget drafting. The government could also announce taking kaushal kendras to the block level. Incentives for public private partnerships to promote agribusiness, such as construction of warehouses, setting up of cold chains and food parks, may also be on the cards.

The Budget could open up market yards, set up under the Agricultural Produce Marketing Committee Act, to private players. A boost is expected for irrigation as well, with greater allocations, and more projects brought under the Pradhan Mantri Krishi Sichai Yojana. At present 99 projects have been taken up, of which 11 have been commissioned.

Haryana and Madhya Pradesh have begun assuring a floor price for cash crops. Haryana offers a minimum price for four crops - tomato, potato, onion and cauliflower. "We want to see how things work before scaling up," says Om Prakash Dhankar, Agriculture Minister, Haryana. But this alone will not be enough to raise farm incomes substantially. "This scheme can run in parallel with the minimum support price regime for the basic kharif and rabi crops. But India needs to put in place a multi-dimensional policy," says Rajiv Kumar, Vice Chairman, NITI Aayog."

Will these moves make a difference? It will depend on their implementation.

@anileshmahajan


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