A record two consecutive years of droughts coupled with dramatic fall in farm gate prices have pushed Bharat’s farm growth in the first two years of Narendra Modi-led NDA government to below 2 per cent. Falling growth was just one of the parameters in an overall scenario where the rural distress was becoming all too apparent.
In fact, the recent poll reverses in Bihar, and also not so impressive performance in some local elections in Gujarat and Madhya Pradesh and Maharashtra was being attributed to widespread distress in rural Bharat. Farm incomes dipped so also sale of tractors, motorcycles and fast moving consumer goods, all necessary ingredients of a booming rural sector.
Almost 40 per cent of the country was under the grip of a severe drought with the situation turning precarious in Maharashtra and Punjab. Overall, Bharat’s farm sector was looking down the barrel. Farmer suicides were on the rise, leading to allegations that Narendra Modi and his government was more interested in helping the corporate sector rather than the farmers.
Though farmer suicides and droughts were not new to Bharateeya farmers, in the last two years it was coupled with a massive slump in global commodities prices, which had its cascading impact on Bharateeya markets as well. Commodities that were exported saw a huge drop in prices. The MSP increases for main cereals like wheat and rice have been less than 10 per cent, though for pulses and oilseeds the hike was substantial. But in the absence of a structured procurement mechanism, the hike was of no use. The Centre did enhance the compensation for crop loss and was rather quick in sending teams to assess the impact of low rains and announced speedy compensations which were higher than previous years, but the tag of farmer-unfriendly refused to go away. It is under these circumstances that Budget 2016-17 was being eyed with lot of hope.
There was a talk that agriculture ministry’s budget might rise by at least 20 per cent, while the spending on irrigation could be increased. The allocations on Pradhan Mantri Gram Sadak Yojana and MNREGA—which just a few months back was dying a slow death—could be raised. Public spending needed to grow as a big way to kick start manufacturing sector could have been through the rural sector. The 2016-17 Budget seems to have not disappointed on that count in many respects, though there are problems with some of the promises made and assurances given.
The total allocation for Ministry of Agriculture and Farmers Welfare rose by massive 94 per cent which also included a transfer of Rs 15,000 as interest on short-term crop loans, which earlier used to be part of the Finance Ministry’s Budget. If the crop loans subventions are deducted the total allocation increase was around 30 per cent, thought modest, but not small. More than the increased allocation, it is the language, tenor and direction of the government which attracted more attention and was distinctly pro-poor. There was a promise to double the farmers’ income in the next five years that it till 2022.
Jaitley who repeatedly referred to farmers as being the backbone of Bharateeya economy, did not stop at that, he for the first time introduced a ‘Kisan Kalyan Cess’ at the rate of 0.5 per cent on all taxable services through which a sum of Rs 5,000 crore will be garnered.
He also allowed 100 per cent Foreign Direct Investment (FDI) through the Foreign Investment Promotion Board (FIPB) route in marketing of food products produced and manufactured in Bharat, which would benefit small farmers specifically as now onwards foreign players can source raw material from Bharat. That apart, the finance minister also acted on a suggestion made in the Economic Survey 2015-16 and decided to start Direct Benefit Transfer (DBT) of fertiliser subsidy in select districts on a pilot basis.
Though, much of the allocation would be spent on completion of existing irrigation schemes and their results would only be felt after a gap, nonetheless, it seems to well-intentioned beginning. Around 89 irrigation projects under the Accelerated Irrigation Benefit Programme (AIBP) that have been languishing for a long time would be fast-tracked in the coming financial year which would help in irrigating 8.06 million hectares of land.
Excise duty on components to make agriculture pumps and service tax on construction and maintenance of canal and dams has been either lowered or waived-off. He also announced the creation of a long-term irrigation fund in NABARD with an initial corpus of Rs 20,000 crore. The flagship Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) will be implemented in a mission mode. Under it 2.85 million hectares would be brought under irrigation in 2016-17. The Centre plans to spend around Rs 12,517 crore on the programme of which Rs 5,717 crore would come from Budgetary allocation and rest from market borrowings.
That apart, a new programme for sustainable management of ground water resources with an initial allocation of Rs 6,000 crore has been proposed to be launched in 2016-17. The funding for this would come from multilateral agencies. The Centre also plans to utilise MGNREGA funds to build 0.5 million farm ponds and 1.0 million vermin compost pits in 2016-17, which is also helpful for irrigation.
For rural areas a whole, the total allocation has been hiked from Rs 79,526 crore (Budget Estimate, or BE) in the last Budget (2015-16) to Rs 87,765 crore this year (2016-17). It means a growth of slightly more than 10 per cent over BE. This year’s Budget, however, had several other schemes to help improve the health of the rural economy. For electrification of all villages, Rs 8,500 crore has been allocated. There are more than 13,500 villages yet to get electricity — the government plans to cover all of them by May, 2018.
Another focus of the Budget is the new digital literacy mission, which will target 60 million households over the next three years. The government estimates show that 120 million, of the total 160 million, rural households do not have computers. The new scheme, details of which will be announced later, will address this, said the minister. Computerisation of land records also found special mention in the Budget. An integrated land management system is proposed and Jaitley allocated Rs 150 crore for it.
There were a number of other specific schemes aimed at the rural sector. A majority of the beneficiaries of rural LPG connections in the name of women in Below Poverty Line (BPL) households will be from rural areas. With an allocation of Rs 2,000 crore, the government will provide LPG connections to 15 million households this year. The scheme will run for two more years, covering 50 million BPL households. That rising expenditure on costly health care is one of the major contributors to growing rural deprivation. The government has announced a health protection plan offering coverage of Rs 1 lakh per family. Senior citizens will have an additional cover of Rs 30,000. The government also plans to open 3,000 generic drugs stores this year.
A special scheme to promote entrepreneurship among Scheduled Castes (SCs) and Scheduled Tribes (STs) is also announced with allocation of Rs 500 crore. “The scheme will facilitate at least two projects per branch of banks, one for each category of entrepreneur. This will benefit at least 250,000 entrepreneurs,” said the FM.
Though the Budget’s overall theme and focus seems to have found favour in many quarters, it is the finer details that are coming in for criticism. One profound criticism has been the target of doubling the farmers’ income by 2022. Analysts have failed to digest Jaitley’s promise to double the farmers income in five years, a point Prime Minister Narendra Modi had made at a rally at Bareilly. Some experts say this is easy as farmers’ income can be calculated from the Central Statistical Organisation data on rural income or derived from the cost of cultivation data prepared by the Commission for Agriculture Costs and Prices. It is the doubling part which is difficult and open to criticism.
But the Centre does have a plan: it feels farmers’ income can be doubled in the next five years by lowering their costs of production. It believes costs can be brought down by making water available through better irrigation facilities, judicious use of fertilisers and chemicals, better marketing facilities and a calibrated increase in the Minimum Support Price (MSP). The government believes that all these intangibles would combine to lower the cost of production for an average farmer, and improve his earnings, which together would lead to the doubling of his income by 2022.
A crucial part of the plan will be the MSP. The BJP in its 2014 election campaign had promised an MSP which is 50 per cent over the cost of production. The suggestion first mooted by the National Farmers’ Commission under the chairmanship of noted Agriculture Scientist MS Swaminathan during UPA-1 but was never implemented in its 10-year rule.
In fact, the agriculture ministry in an action taken report tabled in Parliament in April 2015 rejected the MSP formula on the grounds that such a mechanical method of calculation might distort the market and could prove to be counter-productive by encouraging inefficient production.
However, two consecutive years of drought and a general fall in farm-gate prices leading to an overall scenario of rural distress has re-ignited the demand, and Modi and Jaitley have started to see wisdom in it. Still, it will take a leap of faith to bring about such a sharp increase in MSP. It will be tough for the government to raise MSP in such a way. According to a written statement tabled in Parliament in the last winter session, the all-Bharat weighted average cost of production of arhar (tur) from 2012-13 to 2015-16 increased by around 17.07 per cent, but the corresponding MSP during the period went up only 14.93 per cent.
The data also showed that the weighted average cost of production of moong increased 16.41 per cent between 2012-13 and 2015-16, while the corresponding increase in MSP during the same period was around 5.68 per cent.
Interestingly, the same data set show that from 2012-13 to 2015-16, the all Bharat weighted average cost of production of wheat increased by 9.63 per cent, while MSP surged by a hefty 12.96 per cent during the same period. It is under these circumstances that doubling the income by 2022 without sharp increase in MSPs or a quantum jump in the value of production looks somewhat improbable.
That apart, the targets fixed for irrigation also look highly optimistic given that progress so far has been very poor and largely dependent on state’s cooperation. But, the Central theme which this budget fails to address is how to boost the income of an average farmer in the shortest possible route. A steep hike in MSP could have been an answer. If government could take care of this aspect at the execution level the coming financial year can drastically transform Bharat with focus on rural development.