Feb 29, 2016 07:49 AM IST | Source: CNBC-TV18

Budget 2016: Focus could be on micro irrigation, crop insurance, say experts

Agriculture and rural development being an integral part of economy, every Budget has a list of schemes for the rural India and farmers.

Agriculture and rural development being an integral part of economy, every Budget has a list of schemes for the rural India and farmers.

The 2015 Budget for instance had the following:

Rs 5300 crores for micro-irrigation,  and the 'pradhan mantri krishi sinchai yojana'

> Around Rs 25,000 crore to be invested in rural infrastructure development fund (RIDF) set up in NABARD;Rs 15,000 crore for long term rural credit fund; Rs 45,000 crore for short term co-operative rural credit refinance fund; and Rs 15,000 crore for short term RRB refinance fund.

> All this amounts to one lakh crore of allocations, but only 5% or Rs 5,300 crores for the irrigation scheme is for capex in agriculture.

The NDA government has spoken about more investments in this micro irrigation scheme and improving the crop insurance scheme post the rural distress on back of two successive monsoon failures, lower global grain prices, and lower overall economic growth.

So what should rural India get from the Budget. Should it leave it to the states? Should it put more money in the NREGA or the employment guarantee scheme etc. –To get answer to all these questions CNBC-TV18’s Latha spoke to Economist Abhijit Sen, Former Memeber of The Planning Commission, Rajesh Jeurikar, CEO, Tractor and Farm Mechanization, M&M and Saugata Gupta, MD & CEO of Marico.

The experts do no expect much for the rural India from the Budget since it is both constitutionally and practically a state government’s responsibility. However, they expect the government to allocate more for macro irrigation and also expect the crop insurance scheme to be liberalised and premium for farmers lowered.

According to them there is scope for government to use digital initiative to unify segregated agricultural markets.

However, they think it is too early to expect direct benefit for fertiliser and food.

They think general schemes like rural electrification and sanitation, and construction activities could improve job opportunities for rural workers.

Below is the verbatim transcript of the interview.

Q: As a long time viewer of Budgets and planned policies, what are exactly the numbers or announcements that you would look forward to in the current Budget?

Sen: Not much actually. I think the first thing is that I am almost sure there will be a fairly large part, at least the initial part of the Budget devoted to agriculture. So, there will be a lot of things which will be said, announcements made. On the other hand much of it will be increasing expenditure on things which have already been announced, some of them fairly new like the insurance scheme for example.

However I wouldn’t be looking for something very new in this. There may be somewhat larger amounts being mentioned but traditionally what comes in the Budget on agriculture is often really off Budget items, things which are expenditures by banks and non government agencies and there is a reason for this. Agriculture is basically a state subject and the central government has a fairly limited role to play in it, much of it is to do with subsidies.

Q: Now with the finance commission transferring some of the central schemes to the state governments do successive Budgets become less impactful on rural India?

Sen: Last year for example which was the first Budget after the finance commission there was a fairly substantial cut on the agriculture side not as large as some other sectors but agriculture took a hit by about 30 percent of the centres planned expenditure was cut and the states were supposed to pick them up.

One of the interesting things would be if the Budget does say something about whether or not states have picked up where the centre actually had to withdraw a little bit. More than anything in the central Budget, the health of agriculture depends upon how states along with it.

Q: How much exactly was the amount cut in terms of monies given to agricultural projects?

Sen: The largest central sector schemes was something in the 2014-15 Budget, it was something called the Rashtriya Krishi Vikas Yojana (RKVY), that was cut by a little bit more than half. There were cuts in lot of other centrally sponsored schemes less than that but all of it added upto about 30 percent cut or so.

Q: What would you watch out for in the Budget?

Gupta: There should be continued strengthening of some of the direct benefit transfer schemes that have happened. May be some more steps on things like crop insurance in certain states specially which has had two consecutive years of drought which will bring relief. However I am of the firm belief that better execution, much more investment behind infrastructure is a much better root than just taking some short term measures.

Q: What exactly are the schemes or numbers that you would look out for in the Budget for rural India?

Jejurikar: I think both of these are two very important schemes one is the irrigation and the other is the insurance. Capital formation has typically been about 10 percent of the government expenditure. The rest as you know is been spend across subsidiaries and other forms of a support mechanisms.

Like Abhijit Sen said my view would be what one should expect from the Budget is a statement of direction at this stage and a progress towards investing in some of these very critical schemes. Only about 40-45 percent of the cultivated area gets irrigation right now. That is one of the key factors which make us very vulnerable to monsoons like we have seen in last two years. There is not enough level of irrigation support available in most parts of the country or for many different types of crops.

Q: I take your point – I am just trying to find out how we will measure the Budget? I will tell you the four or five numbers I picked up from the previous Budget speech Rs 5,300 crore to support micro irrigation, watershed development and the Pradhan Mantri Krishi Sinchai Yojana, Rs 25,000 crore to the corpus of the Rural Infrastructure Development Fund (RIDF) setup in National Bank for Agriculture and Rural Development (NABARD), Rs 15,000 crore for long-term rural credit fund, Rs 45,000 crore for short-term cooperative rural credit, Rs 15,000 crore of Regional Rural Bank (RRB), the Regional Rural Bank refinance.

What do these numbers tell you? If any of these numbers are increased by Rs 500-600 crore are we to understand that rural development has got a better attention this time? How will you take home the point that rural development has been attended too?

Jejurikar: That is a fair point because numbers in the order of Rs 400-500 crore are not going to make a big difference. Just very anecdotally Rs 5,000 crore number is the kind of figure that goes into setting up a new industrial plant by private company or even a public sector company.

So, when we talk about even say a figure of Rs 5,000 crore which the government is going to spend on irrigation across the country as large as ours and of course very wide spread with the kind of gaps that we have that is clearly inadequate.

2 percent is what has been spend on irrigation in the recent past on irrigation in the recent past and that has dropped compared to the 3 percent that was there earlier. So, I would say at least doubling the 2 to 3 percent to 5 to 6 percent is really what one would say yes now there is a significant focus on irrigation.

As industry we would want to see more capital formation kind of budgetary spends rather than something which will enable the short-term. So, our expectations will be put money in to building resources for the long-term, building capability making the rural markets and agri markets monsoon proofed that is really what will build a sustainable future.

Q: Let me come to something more concrete – the crop insurance scheme what do you expect could be announced and what will make for a successful crop insurance scheme?

Sen: You are looking for numbers and I think this is the number to look for. Crop insurance has been around for a long time. The significance of the more recent announcement is that the premium rates will be cut and the insurance payments will kick in at a much earlier stage that is not at 50 percent loss but at 30 percent loss.

Now both of these basically mean that the outgo on insurance would have to go up quite substantially because you are going to have larger claims payments for lower premiums. Now to back this up would require in my opinion at least a doubling of what the insurance payments used to be so much and possibly a lot more than that.

Our total insurance charge on the Budget has varied obviously because it is higher in a bad year and lower in a good year but it had been of the order of around Rs 3,000 crore. It would be vary between Rs 1,000 and Rs 3,000 but in a bad year it should be about Rs 3,000 crore with the old scheme.

I would certainly look for is, is there an adequate amount of a funding to make this a reality. The government will be lucky because it is extremely unlikely that next year will be a bad year again. So, they may not have to spend all of it but it is still, it is important to make sure that the premiums have been paid. The allocation is there in the Budget which may not come in necessary if the insurance claims are not there because the monsoon is a good one.

Q: What is your take on what the government might do to improve agricultural marketing and make a common market for agri products?

Gupta: This is a difficult subject and I think and it has to move gradually. However, as far as we are concerned obviously we have a certain another method where we have disintermediated ---2:56 sources from the farmers. However, I think that something on the simplification of the Agricultural Produce Market Committee (APMC) will be good for the industry and good for the farmers long-term.

Q: Repeatedly efforts have been made to release the hold of the APMCs. Is that one area that you would look for in terms of announcements?

Jejurikar: Yes, certainly and with the thrust that the government has on digitisation and with the kind of proliferation we see of smart phones and data enablement in rural India I think it is time for a e-platform based transparent market place. I don’t think the time is too far away when it can make a significant difference in India with internet connectivity improving, with access to smart phones going up dramatically I think this can be the game changer.

This will probably be one of the biggest drivers in increasing the farm to market value chain realisation because as we all know however good the crop is it is finally the income of the farmer is based on the price he is able to realise. To have a more transparent mechanism to help the farmer get the best price can be one of the significant game changing initiatives that the government can focus on. The time is right, if this was even done one year or two years back maybe it was time to early. The time is absolutely a right to do it now.

Q: Do you expect subsidy amounts or methods of transfer of fertiliser or food subsidy to be part of the Budget? Will that make a material difference to rural India?

Sen: The big story on subsidies is that they should have come down. World fertiliser prices are down so I think the big story is that the government has a leeway there because not only has oil subsidies come down very sharply subsidies at least in fertiliser should also have come down somewhat.

How they make use of it is the real issue. I think there is a lot said about direct benefit transfer (DBT) on fertiliser. They can try but I think there are lots of efforts still need to be done because there is not much a clarity regarding who should get a fertiliser subsidy. I don’t we have a data base which is credible for that.

 Q: Dr Gulati has been repeatedly speaking about instead of a procurement price to give a farmer protection in terms of an income protection, you don\\'t expect such dramatic policy changes to be announced, do you?

Sen: I do not because that would require a really big homework and we don\\'t see evidence of that happen.

Q: Are you expecting the government to announce any specific sops for the food processing sector?

Gupta: The food processing sector is going to be one of the growth vectors in the country in terms of benefiting the farmers, cutting out the intermediaries and ensuring that there are enough benefits in terms of industries to actually produce the thing and it will benefit also consumers in terms of cost. I think today there is a lot of wastage that happens in the entire infrastructure. So, infrastructure is a big thing and therefore there has to be continued benefits to invest behind infrastructure.

I believe this is could be the big drivers of growth of the economy. So, the government should continue to encourage the industry and which will be a very win-win for both the farmers and the consumers and the economy in general.

Q: One of the reasons why terms of trade change and went against agriculture in the last 4 or 5 years has also been that construction activity has been very poor. There was again a study which Dr Gulati quoted to us when we last spoke to him that between 2003 and 2008 because of the extraordinary increase in construction activity rural workforce fell by 11 percent he said something from 64 percent to about 53 percent because that much got drawn as construction labour which is why rural wages went up. So, he was making a link between construction activity falling and therefore rural wages falling. Do you think we should look for that - construction of smart cities or freight corridors. In any way increasing construction activity does that increase rural prosperity simply because there are more jobs?

Sen: Obviously it does because I think it is true that the agriculture labour force a substantial part may be the sort of numbers that Gulati is quoting but a substantial part did find additional employment within rural areas or even in urban areas in construction.

Unfortunately what has happened is that the rate of growth of construction as a sector which was roughly 10 percent per annum from 2004 to about 2013 is now around 3 percent or 4 percent at best. So, we have got a real all round decline in the construction activity in the country in general reflecting our low overall investment rates. Now that is a big question, that is not coming from agriculture, some of it is coming from agriculture but that depends on agricultural incomes. However much of it has to do with stimulus elsewhere and the main stimulus would only come with the private sector corporate investment picks up or urban investment in residential construction picks up. The second I don\\'t see happening, there is too much empty houses lying around.

Q: NREGS numbers if a higher amount is announced would you think that rural development has got a leg up?

Sen: I think the number should be higher not because of giving a leg up or anything. As I said in the case of insurance if you announce something there should be money to back up what you say. What we have seen in NREGA is that there was a scheme well laid out, it had exactly all the parameters saying 100 days, so many rupees and we did not have the money to back it up.

Latha: Here are the key takeaways from my experts:

1. Don\\'t expect too much for rural India, since agriculture is both constitutionally and practically a state government responsibility.

2.Expect the government to allocate more for micro irrigation.

3.Crop insurance scheme may be liberalised , that is the premiums that farmers have to pay may be lowered and relief may be available at even lower losses.

4. Government could use its digital initiative to unify at the moment segregated agricultural markets.

5. Too early to expect direct benefit transfer for fertiliser and food subsidies, the ecosystem has not yet emerged.

6.General schemes for rural electrification and sanitation as also construction boosting activities such as smart cities can improve the lot of rural workers by giving them more job opportunities.

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