Budget 2016: Crop insurance key for other agri schemes, says ITC

S Sivakumar, Divisional Chief Executive, Agri Business at ITC, expects fertilizer subsidy outlay to come down due to lower commodity prices.
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Feb 24, 2016, 02.15 PM | Source: CNBC-TV18

Budget 2016: Crop insurance key for other agri schemes, says ITC

S Sivakumar, Divisional Chief Executive, Agri Business at ITC, expects fertilizer subsidy outlay to come down due to lower commodity prices.

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Budget 2016: Crop insurance key for other agri schemes, says ITC

S Sivakumar, Divisional Chief Executive, Agri Business at ITC, expects fertilizer subsidy outlay to come down due to lower commodity prices.

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With announcements of programmes like crop insurance, micro-irrigation and soil heath card, the Centre has a pivotal role to play in Agriculture Budget this year, says S Sivakumar, Divisional Chief Executive, Agri Business at ITC .

Speaking to CNBC-TV18 he emphasized on crop insurance, as it will form a base for other agriculture scheme and expects an allocation of Rs 8000-9000 crore in the Budget for the same.

However, he is of the view that funds for micro-irrigation needs to be increased at least fivefold. Even subsidy irrigation has not worked so far, he says.

On the subsidy front, he expects fertilizer subsidy outlay to come down due to lower commodity prices. He believes various subsidies should eventually lead to market creation instead of market distortion.

On Direct Benefit Transfer (DBT), Sivakumar says it will take a while to reflect in the budget numbers as the eco-system is yet under development.

In addition, only raising production is not enough, he says, adding, even consumption needs a boost. Tax rationalization in food processing will aid consumption, Sivakumar says.

Further, he expects reforms in the Agricultural Produce Market Committee (APMC) and Essential Commodities Act.

Below is the verbatim transcript of S Sivakumar's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: Are we exaggerating the importance of the central government\\'s Budget on agriculture, it is so much a state subject, the 14th Finance Commission transferred a further amount of central agricultural subjects to the states, are we just overstating the importance of the Budget for the rural sector?

A: I think centre still has a couple of very important roles in the Budget. One is we have heard very interesting programmes over the last several months from the new government be it in the form of crop insurance, be it in the form of irrigation, be it in the form of soil health card.

I think in partnership with state and the private sector, Central government has to translate these schemes on to the ground with sufficient funds allocation from the centre. So that is one aspect.

The second is a number of reforms in agricultural since there is no other bigger statement that happens, Union Budget is another forum in which these statements are made on reforms and some are the triggers happened from there. So, although state is the core for implementing anything to do with agriculture, centre and the union Budget still has a very important role in how the whole sector is stirred.

Sonia: What in your mind is the Budgetary allocation that is required for crop insurance and some of these irrigation schemes like the Krishi Sinchai Yojana, what would your expectations be from the Budget this time?

A: I think the milestones have been stated in terms of the coverage. For example, for crop insurance to set that half of all the farmers will get covered through a market subsidy not above a certain level of premium that the farmers pay and it will be covered and that will require if that kind of a coverage has to happen, Rs 8,000-9,000 crore has to come from a crop insurance perspective.

For the irrigation, there is very interesting programme in terms of getting the micro-irrigation into place and some states have already moved ahead with the limited Budget of Rs 1,000 crore that was allotted in the last year. At least, it has to go up five fold to deal with the kind of weather issue that we have been having.

Soil health card is another area over a period of next three years if the whole country has to be covered that requires another Rs 6,000 crore in terms of allocation. That is in a sense self paying because more appropriate usage of fertiliser on the basis of soil health cards will reduce the fertiliser subsidy. So, I think mile stones have been announced.

In tune with the milestones, one has to allocate the Budget. Another very important aspect is while doing this subsidies, market should not get distorted. Insurance is designed very appropriately that while governments will fund the subsidy, the entire programme implementation will not be done by the government, it will be handed over to private sector companies so that the market will also get created.

The minute you make something universal in India, like this insurance scheme, suddenly you get the power of volume and as a result you can bring down the cost. I think anywhere where you are looking at central government support, the subsidies should eventually support the market creation rather than distorting the markets.

So that will be the two points I would like to make in terms of what kind of funds in line with the milestones already announced as well as market creation instead of market distorting while supporting whatever is required.

Latha: Two things are happening in the subsidy space. One because of the fall in global prices of both, food and fuel, even the fertiliser Budget is likely to look lower simply because the prices are lower. Simultaneously, the government has started the direct benefit transfer (DBT) for fuel, should we expect -- if you can prepare us with terms of numbers -- a higher fertiliser subsidy number, lower subsidy number, any DBT possible, any farm income support in lieu of fertiliser support, what are realistic expectations there?

A: Fertiliser subsidy numbers will come down partly because of the lower global cost across all commodities, the fuel and same thing translates into fertiliser so one would see lower number there.

The DBT, although it is possible, rest of the ecosystem still needs to get created. So, one cannot instantly get onto nationwide DBT just now. I think, as rest of the ecosystem gets created in terms of how do the farmers encash these specific subsidies, what are the shops in which it can be done, all of this need to get formulated before these pilots that are happening in about 50 districts around the country gets scaled up. So I think that needs to happen in somewhat calibrated manner. Currently, whatever the government is doing on that front is well appreciated. While that is the eventual goal, one should not do it in a hurry. So that gets used for the purpose for which it is intended and one would see a more productive agriculture.

Sonia: You gave us some very helpful numbers on the crop insurance scheme, you are expecting about Rs 9,000 crore. On the soil health card scheme about Rs 6,000 crore but I didn’t get details on what your expectations are as far as micro-irrigation is concerned. In 2015, it was decided that Rs 50,000 crore will be allotted to the Krishi Sinchai Yojana over the next five years. Wanted your thoughts on what could be announced this time and what has the progress of this scheme been in the past one year?

A: On account of micro-irrigation, the erstwhile approach of subsidising the companies once the irrigation systems are being sold, I think that system hasn’t worked very well because the basic cost has risen as a result of that.

Over the last year, wherever efforts are happening, we have been trying to get right system in place much like I described in case of insurance and so on. So, if that kind of an approach is rightly identified, that will be the right time to get the money in. So, I would see that out of the total money that has been announced, one would see that less than 10 percent probably will be required this year to expand wherever these pilots have worked rather than putting in a lot more money into irrigation just yet.

Therefore, I think the importance of crop insurance scheme in the first instance -- so that the farmers risk is taken care and once an appropriate implementation methodology is identified then the money can flow into this irrigation as well. In the meanwhile, I think larger irrigation projects are continuing at the state government level.

Latha: Agriculture apart, would you expect that the government given its manifesto and other indications, would concentrate more on royal development rather than agriculture. For instance like the thousand smart cities, a lakh smart villages, electrification of one lakh villages or something higher allocation to National Rural Employment Guarantee Scheme (NREGS), would that be the way to go, would there be some interesting numbers you would look at over there?

A: One more important point, I would like to make with respect to agriculture itself before I shift on to the broader aspects of rural is agriculture ultimately just raising production is not good enough. You need to get the consumption side taken care and so food processing sector already there is a fair amount of food safety issues that have been brought to the fore. I think it is to be seen as important consumption that will evacuate the production from the farmer.

So far we have given enough and more support to the production aspects of agriculture and food. It is high time, we look at food processing and therefore support food consumption through the various reforms as well as other Budgetary announcements.

As it is we have the consumer preference for the fresh food. That is why you have issues in terms of farmers not even taking their produce to the market, vegetables like potato and onion at times of the year and throw them on the road and suddenly three months later, you see huge spikes in these products.

Until such time, the taxes on food processing are brought down to an extremely moderate level. If you add up tax on the various services that have along the way, the packaging and on the finished product itself, they will be well over 20 percent.

So unless you bring it down in some cases it should be zero, in some case maybe 1-2 percent kind of taxation and you get the consumption side up. You won\\'t find this long-term solution for agricultural productivity and farmer incomes. We have already seen exports declining because of the global commodity prices. The farm profitability has dropped to just about 5 percent last year compared to 25-30 percent we have seen a few years ago. So that is one aspect that must be looked at in terms of food processing sector.

Secondly, the agri-business and food processing industry engaging with the farmers to produce right quality output from the farms. So that it feeds in to the process and that requires reform of areas like APMC and once investments are made, you cannot at the knee-jerk import things like essential commodities act not differentiating between hoarders and supply chain players. Some of these reform statements must also happen otherwise it will be just dealing with supply side issues and not the demand side issues.

When both these go hand-in-hand, that is when you will see a long-term solution to this sector.

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