What Indian agriculture needs from the budget

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Last Updated31/01/2022

Slashing the subsidy bill on food and fertilisers, investment in research, efficiency in government expenditure can increase farmers’ incomes
Transparency in budgetary accounts is also critical for the credibility of the budget.

Subsidies on food, fertilisers, and payments under the PM-Kisan Samman Nidhi will dominate, and may even go towards Rs 5 lakh crore in total.
As a percentage of net tax revenue of the Union government (after deducting the share of states), this subsidy amount may turn out to be around 30 per cent.
This share of subsidies is multiple times the government’s expenditure on agri-R&D through its Indian Council of Agricultural Research (ICAR), which hovers around Rs 8,000 crore.
However, investment in agri-R&D brings five to 10 times higher returns in terms of agri-GDP or even poverty alleviation than the same amount spent through, say, fertiliser subsidies (or even power subsidies by states).
The upshot of this is that if the Union government wants the biggest bang for its buck, the right approach is to double or even triple the amount on agri-R&D and extension, especially in the emerging areas of high-value agriculture (horticulture, medicinal plants, livestock, fishery, etc).
This is not just to raise their productivity but also build efficient value chains to supply these to lucrative markets, so that farmers’ incomes can be significantly augmented.
That’s where the role of the private sector becomes important.
ICAR needs not only a big infusion of funds but also an overhaul to collaborate with the private sector and FPOs to make its research outcomes marketable.

The rising bill of food subsidy is the result of the high economic cost of rice and wheat to the Food Corporation of India (FCI), the low issue prices at which it has to supply grains for the public distribution system (PDS), and the large population (67 per cent) to be covered under the National Food Security Act (NFSA).
The economic cost of wheat and rice is almost 40 per cent higher than their MSP.
Given our weak governance of the PDS, ground reports suggest there is not only massive leakage of rice in the open market but it also goes towards ramping up our rice exports, which may touch 20 million tonnes this year, the highest ever in history.
And when India exports, say, 20 mmt of rice in a global market that hovers around 45-46 mmt, it brings down the global prices of rice.
This means that India has to export more quantities of rice to get the same amount of dollars making a perfect case for imposing an optimal export tax on rice.
Also, this amount of rice which is being produced through heavy subsidies on power for irrigation and extremely low urea prices meaning that we are exporting at least 40 to 50 billion cubic metres of water.

NITI Aayog has come up with a Multi-dimensional Poverty Index (MPI) putting Indian poverty at 25 per cent for the year 2015-16 based on NFHS data.
The 2019-20 data set would give an even lower poverty ratio.
Poverty based on the international definition of $1.9 per capita per day (PPP) is even lower (around 11 per cent) for 2017-18, as per the World Bank.
The Economic Survey had earlier made a case for reducing the coverage of beneficiaries under NFSA from 67 per cent to 30 per cent, which makes ample sense for targeting the poor and bringing efficiency to the PDS.
Beneficiaries should also be given the option to receive the money in cash in their accounts, which could be equal to MSP plus, say, 20 percent, in lieu of physical grains.
This would reduce leakages, and also save on the high economic costs of these grains.
If the coverage of beneficiaries under NFSA cannot be reduced, at least those who are non-poor can be charged at half the price of the economic cost.
Similar moves are needed on the fertiliser subsidy front in order to avoid making budget a mere accounting exercise.