Ruchi Agrawal Moneycontrol Research
Highlights:
- Expansionary budget with a focus on consumer spending and farm reforms
- Direct incomes support for marginal farmers
- Interest rate subvention to support allied farm activities
- Allocation to crop husbandry and urea subsidy ticked up
- Benefits from schemes would rest on prudent implementation
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Amid several macro-economic and geopolitical challenges, the Centre came out with an expansionary budget majorly focused on boosting consumer spending, while infrastructure and capex spending seems to have taken a backseat. The focus remained on farmers and the middle-class segments of the economy. While many argue the schemes to be populist in nature, implementation of the same, with prudence, would provide relief to the rural and middle-class population and can be taken positively.
In line with our expectation and views, the budget addressed the issue of bringing stability to farm incomes and provide relief and bargaining power to small farmers. Though a lot would depend on the actual implementation of the schemes, current allocations indicate a future boost for rural incomes, which would ripple through as a boost for demand for farm inputs and rural consumption.
Income support scheme: Finance Minister Piyush Goyal announced Pradhan Mantri Kisaan Samman Nidhi, a structured incomes support scheme to poor and rural farmers of Rs 6,000 per year for farmers with land holdings below two hectares. This benefit is to be transferred directly into the bank accounts of beneficiary farmers in three equal instalments of Rs 2,000 each and will be funded directly by the Centre. This scheme is expected to benefit around 12 crore farmers and will cost the government around Rs 75,000 crore, the allocation for which has been made in the Budget. Moreover, Rs 20,000 crore has been allocated for the same in FY19 as well. This new policy is over and above the existing farm support policies and is expected to support farmers in procuring basic farm inputs like seeds and fertilisers etc.
Fertiliser subsidy: Budgeted allocation for the overall subsidy programme of the government has been boosted by around Rs 5,000 crore over the last one year. While allocation for the nutrient-based subsidy remained largely flat, there was increased allocation for urea-based subsidy. The move is expected to provide support to the government's direct benefit transfer (DBT) scheme and quicker clearing up of outstanding subsidies of fertiliser companies dealing with urea-based fertilisers.
Interest rate subvention: The Finance Minister announced a two percent interest subsidy to be given to farmers involved in animal husbandry and farm allied activities via the kisaan credit card scheme. An additional three percent subsidy has also been announced on timely payment of loans. This move would help encourage and support animal husbandry and allied farm activities, thereby developing alternate income sources on farms. The allocation for agriculture finance institutions is also up by almost Rs 2,800 crore.
Crop husbandry: The allocation to crop husbandry has seen a significant uptick in allocation from the earlier budgeted (2018-19: Rs 14,700 crore to 2019-20: Rs 86,600 crore). This substantial uptick should bring in substantial improvement to irrigation provisions and overall soil health, and thereby reduce wagering impact of monsoons to a certain extent.
Crop insurance scheme: The Budget hiked the allocation for the Pradhan Mantri Fasal Bima Yojna to Rs 14,000 crore, an uptick of Rs 1,000 crore over last year. This additional allocation would help in promoting crop insurance penetration in the country and help protect farmers in times of crop failures.
Minimum support prices: After the last year's big announcement of the minimum support price (MSP) hike and the eventual failure of its implementation, we see a sharp uptick in the allocation for the market intervention schemes from Rs 200 crore to Rs 3,000 crore this year. Allocation for FY19 has also been revised to Rs 2,000 crore.
Allocation for dairy development: While the Budget speech seemed to announce schemes for ‘gau mata’ and dairy development, the actual total allocation has reduced from last year’s budget. The Rs 750 crore for Rashtriya Gokul Mission seems more of an allocation shuffle within various heads.
Outlook Overall, we see Budget 2019-20 to be tilted towards boosting consumer spending and providing support to farm incomes. Companies into agri inputs, seeds, crop protection, agri feed, logistics, cold storages, food processing, aquaculture and agri equipment segment stand to benefit if the schemes are implemented with prudence.
Enhanced farm incomes would improve the ability of farmers to spend towards farm inputs, which will be beneficial for companies like UPL, Coromandel International, Rallis India, Chambal Fertilisers & Chemicals, Godrej Agrovet, Gujarat Narmada Valley Fertilisers & Chemicals (GNFC),Gujarat State Fertilizers & Chemicals (GSFC) and Tata Chemicals. Irrigation emphasis and reforms would boost companies like Jain Irrigation Systems, Kirloskar Brothers, KSB Pumps and Shakti Pumps. Increased allocation for allied farm activities, animal husbandry and aquaculture would boost companies like Avanti Feeds, Godrej Agrovet, Waterbase and Apex Frozen Foods.
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Disclaimer: Moneycontrol Research analysts do not hold positions in the companies discussed here
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