What does the Union Budget have for the Agricultural Sector - Motilal Oswal
What does the Union Budget have for the Agricultural Sector - Motilal Oswal

What does the Union Budget have for the Agricultural Sector?

Well before the actual budget announced, the expectation was that this would be a budget predominantly focusing on the agricultural sector in particular and the rural sector in general. The reasons were not far to seek. Firstly, agriculture continues to contribute marginally to the overall GDP growth number despite employing the maximum number of Indians. Secondly, agriculture has strong externalities and farm distress had been resulting in higher inflation. Lastly, the message from the Gujarat Poll outcome was that rural India was expecting a lot more from the government in the Union Budget. The moment was ripe for the FM to attack the problems of agriculture on a war footing. Here is how this budget could actually be a game changer for the agriculture sector..

An assured MSP was long in the anvil
The budget announced MSP for most Kharif crops at 1.5 times the cost of production. Strategically, this has two implications for the farmer. Firstly, the farmer has an assurance of realizing the MSP or the market price whichever is higher and that should be to the farmer’s benefit. Secondly, with the formula for pricing based on cost of production, the farmer will be at leeway to spend more on productivity enhancers like agrochemicals, fertilizers and hybrid seeds. While there are debates over the definition of the cost of production, that is more technical in nature. If the farmer can be assured of a good price and also to invest in increasing productivity, he should be substantially better off.

Addressing the issue of information asymmetry for farmers
In the full fiscal year 2016-17, the production of food grains was at 275 million tonnes while the production of fruits and vegetables was at 300 million tonnes. This year, India is likely to sustain these levels of production. However, to benefit the farmer, the farmer must get a good price and that is only possible through a smoother dissemination of price information. Currently, most of the farmers are marginal farmers and do not have direct access to APMCs. Hence they depend on middlemen who take away the cream of the margins leaving the farmer with precious little. The government has already interconnected 470 APMCs till date and this year it will complete the interconnection of all 585 APMCs. The proposed electronic National Agricultural Market (eNAM) will not only enable the farmer to get a good price for the produce but also eventually help them to hedge their price risk using futures to reduce their risk.

Getting the agricultural ecosystem right
Not many of us tend to appreciate the importance of this point but the agricultural ecosystem consisting of the off-take from the farm and the post-harvest infrastructure is very critical. More than 30% of the production of vegetables and fruits gets spoilt due to poor cold storage facilities and lack of proper warehousing. Similarly, poor warehouse infrastructure and lack of weather proofing results in enormous losses in food grains too. With better transport, smarter infrastructure, investments in cold storage etc, these losses can be substantially reduced and agricultural productivity can be increased and fire sales avoided. The budget has allocated Rs.2000 crore to upgrade the agricultural marketing infrastructure across the 22,000 Grameen Agricultural markets and the 585 APMCs. The completion date of the all-weather road across India has been brought forward from 2022 to 2019. Overall, the budget has made an earnest attempt to get the focus on ecosystem right.

Dedicated focus on Agricultural exports and allied agri activities
India currently exports agri products to the tune of $30 billion but the potential is to touch as high as $100 billion on an annual basis. The budget has agreed to liberalize the export of agricultural commodities from India. This will not only keep domestic prices high due to supply management, but also ensure a good price for farmers from the international market. The government has already taken the initiative of setting up a food park in Punjab and that is being expanded across states. Budget has also made an allocation for setting up high-end testing facilities at all these food parks. Allied agri activities like fisheries, animal husbandry and aquaculture have been growing at a much higher rate of 8-10%. This budget proposes to extend the Kisan Credit Card facility to these allied farmers also.

Employment opportunities beyond agriculture
The big challenge is to extend job opportunities in rural areas that are not entirely agriculture dependent. The budget has made a holistic allocation of Rs.14.34 trillion to providing livelihood in rural areas. Additionally, there has also been a focus on the quality of life of rural folks by providing 4 crore free electricity connections, 8 crore cooking gas connections and nearly 6 crore toilets. All these measures are likely to substantially improve the quality of life in rural areas. Agricultural credit is the key to the growth of Indian agriculture. The agri credit number has been increased from Rs.8.5 trillion in 2014-15 to Rs.11 trillion in the current budget.
In a nutshell, the budget has not only focused on financing and price but also on the larger agricultural ecosystem which has been the big roadblock for Indian agriculture. It now needs to translate into a higher growth in agriculture and gradually get it back to the 4% mark.
 

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