For all the talk of the huge election mandate, agriculture as a sector failed to find its pride of place in the latest budgetary exercise. A political consensus can tilt he scales though
The first Budget of the Modi 2.0 government has disappointed most observers of the agriculture scene. They expected that the government, having won an unprecedented mandate, will kick in structural changes through the Budget. But the government’s refusal to take the plunge shows that victory in election is not enough to undertake deep reforms and a political consensus is required before decisions affecting crores of people can be taken.
In the case of reforms in the financial sector, the finance minister did not feel a similar handicap. So, she did take several welcome steps towards reforms.
The Modi 2.0 government was formed only on May 30 and it had just about a month to prepare the Budget proposals. In such a short time, it would not have been possible to consult the states, even if they are ruled by the BJP. After demonetisation, analysts are of the view that the government can take any decision in the interest of economy. But that was a one-off decision even if it affected every single individual in the country.
Agricultural experts wished to see bold decision-making on rationalisation of food and fertiliser subsidies and cropping patterns. The observation is that even though direct benefit transfer through PM-Kisan was launched on the eve of Parliament elections, it has laid the foundation for direct transfer of subsidies in a phased manner and the government will present a road map for the same.
For 2019-20, the Budget provides Rs 1.84 lakh crore and Rs 80,000 crore for food and fertiliser subsidies. In 2018-19, the government had provided Rs 1.40 lakh crore towards food subsidy to the Food Corporation of India (FCI) and Rs 31,000 crore for state governments, which procure food grains under the decentralised procurement scheme (DCP). In the interim Budget presented on February 1, the allocations were increased in revised estimate (RE) to Rs 1.51 lakh crore and Rs 33,000 crore, respectively.
But the government did not pay the RE amount, and the FCI received Rs 69,000 crore less than RE. The outstanding dues of the FCI reached Rs 1.85 lakh crore as on March 31. DCP states are also running with substantial arrears of food subsidy though the amount is not known as the data are not released by the government. In fact, one of the reasons why the states are reluctant to undertake procurement at MSP is the delay in reimbursement of subsidy, even for rice and wheat. The states end up incurring substantial losses in procurement. Chhattisgarh and Odisha have been representing to the Centre about the delay in reimbursement of food subsidy.
Similarly, the government owes Rs 30,000 crore to fertiliser companies as arrear of fertiliser subsidy.
Sitharaman’s Budget for 2020 made no reference to mounting arrears of food subsidy. We wanted to hear the FM on her government’s thinking on reform of food subsidy regime. A road map to switch to DBT for food in at least agriculturally surplus states like Punjab, Haryana and Andhra Pradesh was expected in the Budget, but it seems that the government did not want to touch it even after a huge mandate.
Even the Economic Survey only talked about end-to-end computerisation of public distribution system. For a large number of migrants working at places away from their home, DBT for food is the road to one nation, one ration card. But it was not to be.
For phosphatic and potassic fertilisers, the UPA had brought Nutrient Based Subsidy Scheme in 2010. In the five years of the Modi 1.0 government, subsidy on urea was not touched. The Budget for 2020 again does not provide any road map for that.
The FM mentioned zero based budget farming, which has been undertaken in some coastal districts of Andhra Pradesh. Without any reform in fertiliser subsidy regime, it is unrealistic to expect farmers to use less urea and switch over to organic farming.
Several regions of India are reeling under drought and water stress has become one of the most pressing challenges for farming. The FM took notice of this and mentioned that there are 1,592 critical and over exploited blocks. But she did not indicate how the government proposes to address this enormous challenge.
Experts have been writing about the need to modify cropping patterns in several regions of India. There is no doubt that it is not going to be an easy exercise, but a token provision in the Budget would have shown the government’s seriousness to tackle this challenge.
There is a realisation that farmers can realise better prices only if marketing reforms are undertaken. The FM did mention it in passing, but it would require a lot of convincing of state governments as APMCs would not easily let their influence go. A more emphatic statement in the Budget speech would have given a signal of the government’s commitment to reform the agricultural markets.
The FM has spoken about promotion of milk sector through cooperatives. In the past 10 years, the private sector has taken lead in setting up milk processing plants. In several large states, like UP, the procurement of milk by cooperatives has gone down. If the Food Safety and Standard Authority of India (FSSAI) is as strict with the unorganised sector as it is with the organised one, the milk sector can see large investment by private players.
Even though doubling of farm income does not find a mention in the Budget speech, allied sectors like rearing of animals, dairy, fisheries, forestry etc do provide a window for increase in farmers income, especially in poorer states in east India.
Modi 2.0 has set up a high-powered committee of chief ministers for transformation of Indian agriculture. It seems that the government wants to wait for report of the committee and then build a consensus on road map for deep reforms in agriculture and food sector.
Till then, expect the rural demand to remain muted.(The author is Visiting Senior Fellow, ICRIER, and former Union Agriculture secretary.)Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.