On expected lines, the Budget 2018-19 aimed at strengthening agriculture and rural economy. Agriculture deserves serious attention as roughly half of the population is dependent on it for food security and livelihood opportunities. During the last few months, we have witnessed farmers’ agitation silently spreading across all the states. Budget 2018 has very well packaged various provisions for making agriculture more efficient, sustainable and resilient. The key pillars to strengthen the agri sector—improved technologies, appropriate policies, effective institutions and required infra—are well reflected in Budget 2018.
The most significant one is accepting the long-pending demand of the farmers on minimum support prices (MSP), by fixing it 50% higher than the production cost. This was one of the recommendations of the National Farmers’ Commission, and farmers were demanding for its implementation. It is an important step, as farmers rarely get the benefits of higher retail prices. Often traders collude around MSP and procure at much less prices than the retail, by keeping a large share of higher prices. In the new regime, even if the traders collude, it will be at higher prices and will not be transmitted to retail, as these prices are determined by supply and demand. Announcing higher MSP is not enough unless it is procured at that price or effective mechanisms are in place to compensate farmers in the event of fall in farm harvest prices below MSP.
In the past, farmers responded to government policies, which led to the record production of foodgrains, horticultural crops and milk. With exception of rice, wheat and sometime pulses, oilseed and potato, the government is not procuring at MSP even if the farm harvest prices fell. We have witnessed in the past that in the absence of adequate mechanisms, the prices of majority of food commodities steeply fell and adversely affected farm incomes.
This is contrary to the target of doubling farmers’ income by 2022. It is welcoming that the FM has mandated the NITI Aayog to develop mechanisms to compensate farmers when prices fall below MSP. Recently, the MP government launched a new scheme, Bhavantar Bhugtan Yojana (price-deficit financing scheme), to hedge price risk of eight commodities. This scheme needs to be replicated in other states to discourage farmers for distress sale and ensure MSP. Feasibility of other mechanisms, namely warehouse receipt, futures trading, and export/import, may be tried so that farmer is protected from price risks. Another key part of Budget 2018 is developing 22,000 gramin agricultural markets, and linking them with e-NAM. At present, e-NAM is linked with the existing APMC markets.
Farmers, having no access to APMC markets, are deprived of e-NAM benefits. The proposal of developing gramin markets will have far-reaching implications, including farmers in remote areas will now have access to markets. In the past, developing agricultural markets were ignored that made our marketing system inefficient and fragmented with long supply chains. The traders often exploit farmers in the absence of markets. Access to markets will benefit farmers, especially small and marginal, who have less marketable surplus and high transaction costs. They will realise better prices and their marketing costs will come down significantly. The move will also generate employment opportunities for rural youth and induce input markets, especially seed.
Union Budget 2018 has provision to strengthen FPOs and women self-help groups. Since the agriculture sector in India is dominated by smallholders, aggregating them is necessary to harness economies-of-scale in production, processing and marketing. The FPOs and self-help groups need to be linked with the proposed new food parks for processing and marketing. This institutional innovation will (i) transform agriculture into agri-business profession; (ii) realise better prices due to collective bargaining power; (iii) promote agro-processing; and (iv) generate employment opportunities. It is a welcome step that the FPOs established on the pattern of cooperatives, and having transactions less than Rs 100 crore, will now be exempted from income tax. This will also encourage many start-ups to promote FPOs for production, processing and marketing.
Financing agriculture is of paramount significance to adopt improved technologies, make provision for irrigation, and go for farm mechanisation. Provision for agricultural credit has gone up from Rs 10 lakh crore to Rs 11 lakh crore. Now fisheries and dairy farmers can also avail the benefits of kisan credit card. This will further boost the dairy and fisheries sectors. In addition, aquaculture development fund and animal husbandry development fund have been created. Budget 2018 has further strengthened the Prime Minister Irrigation Scheme by allocating Rs 2,600 crore for groundwater development in 96 most deprived districts for assured irrigation.
This will build resilience to agriculture by reducing production risks due to droughts. Studies have clearly shown that groundwater development helps in accelerating agricultural growth, increasing farm incomes and reducing poverty, especially in low-income and deprived regions. Overall, Budget 2018 is pro-agriculture, which must cheer farmers, especially small and marginal ones.
P K Joshi is Director South Asia, International Food Policy Research Institute. This piece was originally published in The Financial Express