Union Budget: Encourage diversification, reduce subsidy bill

Venkat Hariharan Asha and Sachin Bansal

WITH the Union Budget set to be presented, it’s time to delve into key themes pertaining to the agriculture sector. The total Gross Value Added (GVA) of the Indian economy at basic prices has grown from 2011-12 to 2019-20 from about Rs 82.2 lakh crore to Rs 132.7 lakh crore at a Compound Annual Growth Rate (CAGR) of 6.35%. This has outpaced the CAGR of 3.44% with regard to GVA basic prices for the agriculture, forestry and fishing sector, which grew from Rs 15 lakh crore to Rs 19.7 lakh crore in the said period, implying a reduction in the total share from 18.53% to 14.83%. The GVA is arrived at by deducting the component of intermediate consumption from output. Interestingly, the GVA-to-output ratio for the agriculture, forestry and fishing sector is highest at 78.3. Thus, this sector exhibits the highest potential in terms of contribution to the total marginal output of the economy.

Incentives to shift towards Zero Budget Natural Farming and more of pulses, oilseeds, agroforestry and horticulture cultivation and food processing activities shall, in turn, lead to transition to market-led activity and reduction in the subsidy burden, stronger linkages with the industry, boosting the value chain and leaving more room for investments in agriculture. In order to boost capital investments, launch of the Agriculture Infrastructure Fund with a corpus of Rs1 lakh crore is welcome.

Firstly, let us look at food subsidy and fertiliser subsidy. Their allocation (budget estimates or BE) for 2021-22 is Rs 2,42,836 crore and Rs 79,530 crore, respectively. This takes the allocation for major subsidies to Rs 3,35,361 crore — food subsidy (72%) fertiliser subsidy (24%) and petroleum subsidy (4%). Food subsidy is provided to meet the difference between economic cost of foodgrains and their sales realisation at the Central Issue Price fixed with regard to the National Food Security Act and other welfare schemes. The buffer stock norms for rice and wheat maintained by the Food Corporation of India (FCI) comprise two components — the operational stock and the strategic stock. An examination of the actual stock positions for all quarters over the past four years reveal that the buffer levels have surpassed the norms by a reasonable margin as well as in large proportions. As regards fertiliser subsidy, the prevailing high global prices are a major concern, for which there is a special one-time package for additional subsidy over and above the Nutrient-Based Subsidy rates from October 2021 till March 2022.

The clarion call of the Prime Minister, inviting farmers to adopt Zero Budget Natural Farming (ZBNF), a transition away from chemical-based inputs, is significant. A fiscal impetus (probably fiscal incentives) coupled with capacity building in this area should be the next step forward. The shift to ZBNF could help in substantially lower input costs and increase yields and quality of produce along with long-term restoration of soil health. Even dedicating 1% of the current quantum of the two major subsidies would imply an inflow of about Rs 3,000 crore towards this envisaged endeavour.

As far as procurement operations by the government are concerned, diversification towards pulses and oilseeds should be encouraged, especially since buffer stocks of cereals are excess than the norm. Budgetary allocations for the procurement of pulses have risen over the years. In the case of oilseeds, India is one of the largest producer, importer and consumer — about 60% of the demand is met from imports. Boosting budgetary allocation for oilseed production under the National Food Security Mission-Oilseeds programme will help in reduction of the import bill.

Public policy practitioner Rakesh Mohan had rightly noted that the new growth areas in the agriculture sector are characterised by a higher degree of heterogeneity as compared to wheat, rice and milk in terms of multiplicity of varieties produced, regional concentration of production, marketing conditions and input requirements. Hence, there is a requirement for policy interventions to boost production and productivity in these areas which are more ‘regionally disaggregated’ and ‘knowledge-intensive’. Methods like agroforestry are important to optimise productivity, income and thereby livelihood of small and marginal farmers. Integrating agroforestry with other agricultural schemes and providing financial incentives and technical support to small and marginal farmers is the need of the hour. Upscaling of the National Mission for Horticulture and National Project on Agroforestry (introduced in 2014), with budgetary allocation of Rs 2,385 crore and Rs 34 crore, respectively (BE 2021-22), is strongly advocated.

Price stabilisation

As far as perishables are concerned, for long-term price stabilisation, the government has announced a series of measures — extension of the Operation Greens project from TOP (Tomato, Onion and Potato) to all fruits and vegetables for better price realisation of farmers; reduced wastage; affordability of products for consumers; establishing storage facilities in the PPP mode to use irradiation technology for food preservation to assist farmers. Allocation for PM Kisan Sampada Yojana, which includes Operation Greens, is Rs 700 crore for BE 2021-22. Another thrust has been given towards value addition in this sector through the production-linked incentive scheme for food processing with an outlay of Rs 10,900 crore.

The Ministry of Agriculture, Cooperation and Farmers’ Welfare was allocated Rs 1,31,531 crore in 2021-22 (BE). Of this, the major share was of the PM-KISAN scheme (49%), followed by interest subsidy for short-term credit to farmers (15%) and the crop insurance scheme (12%). A sum of Rs 8,514 crore was allocated to the Department of Agricultural Research and Education, including Rs 55 crore for the climate-resilient agriculture initiative. Simply put, incentives to shift towards ZNBF and more of pulses, oilseeds, agroforestry and horticulture cultivation and food processing activities shall, in turn, lead to transition to market-led activity and reduction in the subsidy burden, stronger linkages with the industry, boosting the value chain and leaving more room for investments in agriculture. In order to boost capital investments, the launch of the National Agriculture Infrastructure Fund with a corpus of Rs 1 lakh crore is welcome. Its implementation on a war footing is a must, besides dove-tailing with e-NAM to improve infrastructure and efficiency of spot markets.

Thus, with a high GVA-output ratio, the upcoming Budget should send out a strong signal in achieving ‘more’ from existing resources by encouraging diversification and eventually ‘more’ from ‘less’ when fruits of today’s investments shall be reaped tomorrow. Azadi ka Amrit Mahotsav should flag off agriculture as a robust engine of growth of the economy.

Asha is Deputy Director, Dept of Pharmaceuticals, and Bansal is Junior Statistical Officer, Dept of Consumer Affairs, Govt of India. Views are personal

Join Whatsapp Channel of The Tribune for latest updates.