The government makes every effort to save consumers from price rise, but does little to help farmers when commodity prices fall.
Seema Bathla and Amaresh Dubey
The Union Budget 2019-20 will be presented on July 5 and the foremost challenge before the new government is to initiate measures that spur economic growth. An equally important task is to generate employment and, hence, accelerate the pace of poverty reduction. The uproar on job creation triggered following the NSSO periodic labour force survey, which showed the unemployment rate in the country at a 45-year high of 6.1 percent during 2017-18. Media reports made it clear that employment generation might have taken place in the formal (organised) sector over the last five years, but the informal (unorganised) sector reeled under a deep crisis. Within the informal sector, the situation is worse in agriculture, which employs half of the country’s population, contributes to food security and generates demand for industrial and services sectors.
Research worldwide confirms a direct association between the alleviation of rural poverty and land productivity. The measures to be taken by the government to accelerate agricultural growth as part of pro-poor policies are now in question. The implementation of PM-Kisan Samman Nidhi Yozna within a month of Cabinet formation showcases the government’s commitment. While such handholding to farmers can act as a short term relief owing to natural calamities, the shrinking size of land holdings and weak institutions, the need of the hour is to come up with a medium and long-term growth agenda for this sector.
In the medium term, it is important to address the incremental increase in the purchasing power of the poor by identifying the pockets of poverty and agrarian distress. Most of the poor in India live in Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha and Uttar Pradesh. Additionally, there are pockets of extreme poverty in some of the developed states e.g., Gujarat and Maharashtra. These areas are home to most of the small and marginal farmers and Adivasi population. The common features are over-dependence on farming (mainly rainfed), lack of agri- infrastructure and more importantly lack of basic infrastructure viz. clean water, sanitation, quality education and health that characterise poverty now. These problems can be alleviated through targeted investments in these segments designed to make the poor participate directly in the creation of infrastructure and increasing agriculture productivity.
In the upcoming budget, the government may consider the following. First, the estimated expenditure by the Central Government on PM-Kisan is Rs. 87,000 crores for the year 2019-20 (Rs. 6000 * 14.5 crore farmers), which should be increased by terminating other schemes or widening its scope to club all schemes under its umbrella. For example, the price support provided on fertilizer, energy, credit, seeds, and irrigation can be replaced with income support. Our calculation on the average amount of cash transfer to farmers in lieu of fertilizer subsidy is Rs. 5,180 per hectare in 2017-18. This amount would maintain the same level of fertilizer consumption and output. The added advantage is that it is bound to reach the beneficiaries, unlike under price support (of nearly Rs. 73,000 crore) due to leakages.
Second, allocations towards agriculture research and development (R&D) and rural infrastructure has been increasing during the last five years, but they should be prioritised as per the requirements in each state. With agriculture transformation due to climatic factors and changes in the demand for commodities, an increase in output and productivity has to be from newer practices that reqauire lesser use of land, labour and water. Before farmers are encouraged to undertake investments in machinery and water saving technologies, the government has to invest in R&D and also develop linkages with the private sector to develop and disseminate knowledge to the farmers.
Third, investment in developing agricultural markets is crucial to help farmers from volatility in the commodity prices and raise production. Ironically, the government makes every effort to save consumers from price hike, but does little to help the farmers when commodity prices fall. The existing policy of fixing agricultural prices and their procurement, as done in the case of cereals can be replaced by direct compensation in a situation of price fall. The government should also encourage the private sector to develop markets with appropriate safety nets when prices become highly volatile. This will give way to value addition by industry and also encourage exports of both agricultural and processed commodities. India has a comparative advantage to export agri- commodities to the South East Asian and West Asian countries. An increased focus on exports, with due care of quality and safety, can help cater to these markets. However, the biggest challenge is to integrate the produce of small and marginal farmers through farmer producer organisations, self-help groups and cooperatives. Under agriculture export policy 2018, Rs 1400 crore is set aside to develop clusters in different states for different produce. Fiscal incentives towards these organisations can go a long way in accelerating exports and generating employment.Seema Bathla and Amaresh Dubey are professors at the Centre for the Study of Regional Development, Jawaharlal Nehru University. Views are personal.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.