Will the Union Budget have a rural twist to it - Motilal Oswal
Will the Union Budget have a rural twist to it - Motilal Oswal

Will the Union Budget have a rural twist to it?

The finance minister’s first pre-budget meeting was on agriculture. The reasons are not far to seek. Firstly, the government had committed to double farm incomes by 2022 and it appears to be nowhere close to that target. Obviously, rural India will require a big rural push from here on if that target has to be achieved. Secondly, farm distress has been most visible in food products where most farmers are being forced to sell their produce at below the MSP. This could mean more stress on farm loans and more stress on banks. Thirdly, the Gujarat elections had a very subtle message for the NDA government. While the ruling NDA did exceptionally well in the urban areas, they lagged in most of the rural areas. That was one of the reasons the margin of victory for the BJP was so narrow. All these point towards only one thing and that is the need to focus on rural India.

Rural infrastructure a focus; admits Arun Jaitley..
In fact, speaking at the HT Summit, Arun Jaitley admitted that the 2018 budget could focus heavily on spending on rural infrastructure in particular and the rural sector in general. In fact, the FM also committed that resources would not be a constraint for this rural push. That only means that even if the fiscal deficit has to be stretched slightly on the upside, the government would persist in its commitment to the rural sector. There is also an expectation that the government would try and give a big boost to job creation in the rural and semi-rural areas. That will obviously call for a big thrust to the rural employment programs like the MNREGA. Jobs are not only economically meaningful but also politically sensitive. With a series of state elections and the general elections coming up in the next 18 months, the rural sector is likely to be the one big focus area of this budget.

Rural infrastructure will include rural roads, highways, connectivity with urban centres etc. All these are not only job creating but also income generating. Also rural infrastructure has a multiplier effect on rural income growth over the next few years.

Rural support products and services..
This will be the next big focus area of the budget. Agricultural production is still largely a function of the vagaries of the monsoon. It is only when we have a good monsoon that we have had a good Kharif crop, as we saw in the last two years. The budget will also focus on higher agricultural productivity via the use of pesticides, fertilizers, agro chemicals, hybrid seeds etc. The government may look at easy financing for farmers for buying these products or more subsidies through the direct benefit transfer (DBT) scheme. Thanks to the spread of bank accounts through Jan Dhan, the government is eminently positioned now to distribute all these benefits online.

Ensuring better price for farmers..
To be fair, the government did increase the MSP for farmers across most of the products. But in reality most farmers had to sell their produce below the MSP due to a glut in the market. This budget could announce a major compensation to farmers both in terms of loan write-offs and compensation for the notional loss by selling below the MSP. The problem today for the government is that it really does not have the pan-India infrastructure to implement and enforce the MSP. That is the problem that farmers are facing in this year and that has only added to the farm distress. The budget may also announce major drip irrigation projects to ensure better and more intelligent use of water for the crops.

Could invest heavily in post-harvest infrastructure..
Post-harvest infrastructure is a very broad term. It encompasses almost every item that enables the farmer to sell the produce easily in the market with minimal wastage and without worrying about the vagaries of the price. Firstly, expect a big focus on post harvest hard infrastructure like more cold storages, better cold transportation facilities, appropriate tax incentives etc. Secondly, the farm-to-fork is a concept that will require a huge thrust from the government. Today, nearly 30-40% of most crops tend to get wasted or destroyed by weather purely due to weak last mile infrastructure. It is likely that this entire activity may get infrastructure status. Finally, there is the creation of an online market. The central government has already taken the initiative on the electronic national agricultural market (eNAM). Like in case of RERA, the central act has been passed and now it is for the states to pass specific state level acts. The idea of an eNAM is to let the farmer hedge his price by selling in the futures market and locking in the price in advance. If the government can push for that market, then most farmers will be largely independent of mandis and APMCs. That will be a big step in this budget.
 

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