Highlights- Tight fiscal situation, allocations under pressure
- Possibility of decontrolling urea prices
- Full DBT system likely
- Allocations expected for crop procurement and micro irrigation
- Expectation of allocations for farm storage
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The central government is dealing with mounting expectations of strong reforms to stimulate growth amid a painful economic slowdown. While the fiscal situation remains tight, the upcoming Budget allocations will be key to determining the growth trajectory.
Reviving consumer sentiment, tackling the dwindling GDP growth and fixing the financial sector woes are the key challenges. The Budget will be a tussle between ability and willingness to spend. Given the goal of doubling farm income, reforms for agriculture and allied services are expected. We look at some of the areas that are most likely to be the recipients of budgetary grants this time.
Decontrolling urea prices and DBT
There is a buzz around the Budget to decontrol urea prices and bring the subsidy on it under the NBS (nutrient-based subsidy) scheme, which would prevent its misuse. There is also a talk of moving to a full DBT (direct benefit transfer) system from the current quasi mechanism, where the subsidy benefit will be directly credited to the end farmer. This move will benefit most major agrochemical companies and help improve their working capital cycles.
Agro warehousing and a nation-wide market
Unavailability of proper storage facilities has been a curse for the farmer even after so much of toil in fields and bumper harvests. The Budget is expected to bring in reforms for rural warehousing and cold storages, along with logistics in rural areas -- which has been suggested repeatedly -- with a view to improving farmers’ reach. Given the low margin at play, we see the 2020-21 Budget offering incentives and subsidies for warehouses and cold storages.
We also expect allocations for promoting reforms beyond e-Nam (National Agriculture Market) and removal of the middlemen in agri markets. Policies and incentives to converge the supply chain from the farmer to the retailer and the consumer are also likely.
Promotion of micro irrigation
Farmers in most Indian states are dependent on the monsoon, which brings in increased uncertainty. Any unexpected monsoon performance is one major cause for farm distress. We expect an increase in allocation for the micro irrigation fund so that dependence on rains is lowered.
Crop procurement and improving farmer’s income
Post the much-hyped higher MSP (minimum support price) and the overall failure in the implementation of the same, we expect the government to set aside more resources to improve crop procurement and earnings of farmers.
Crop insurance
Agrarian distress due to damaged crops has been a major roadblock to rural development over the years. Crop insurance is one solution to ensure protection against untimely adverse weather conditions. Keeping this in mind, we believe that the Budget would provide subsidy for agri insurance companies to ensure insurance penetration in rural India.
Outlook
It has been a mixed show by agrochemical stocks in the run-up to the Budget. However, agro chemicals, fertilizer, micro irrigation, crop insurance, food processing and rural logistics are seen to be the direct beneficiaries in the upcoming Budget. Additionally, measures to boost consumer sentiment will be a positive for rural demand, thus giving consumer-centric companies a shot in the arm.
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