A wish list for agriculture

Is the Union government spending enough on agriculture? This question has gained salience in the run-up to the Budget to be presented on February 1, particularly because there is a demand that more resources should be allocated for the rural economy. The implicit idea is that an increase in the outlay for agriculture would result in higher disposable surplus in the hands of Indian farmers, who can then spend more and help revive demand and, therefore, the economy. What should the government do?

In the past many budgets of the Union government, finance ministers in their speeches would pay a lot of attention to the needs of farmers, but that would often be inversely proportional to the amount of expenditure allocated to the agricultural sector. Take, for instance, the Budget for 2017-18, for which the audited figures are now available. There were about a dozen paragraphs in the speech devoted to farmers. But the total expenditure on agriculture and allied activities, as given in the Budget At A Glance document released in July 2019, is estimated at Rs 52,628 crore — just 2.45 per cent of the government’s total expenditure in 2017-18.

This has changed a little after the announcement of the Prime Minister Kisan Samman Nidhi (PM-Kisan) programme in February 2019. Unveiled in the interim Budget for 2019-20, the scheme promised an annual cash transfer of Rs 6,000 to all land-holding farmer families with less than two hectares of cultivable land. The scheme was introduced retrospectively from December 1, 2018, and covered almost 86 per cent of operational land holdings in the country.

The government’s expenditure on agriculture and allied activities, consequently, went up to Rs 86,602 crore in 2018-19, or about 3.5 per cent of the total government expenditure that year. Take away the PM-Kisan component from that outlay, the increase was very marginal with the government’s farm sector outlay going up to only Rs 66,602 crore or 2.7 per cent of the total government expenditure.

In 2019-20, when PM-Kisan had to be funded for the full year, the government’s outlay on agriculture and allied activities saw a jump to Rs 1.51 trillion, or about 5.4 per cent of the total government expenditure. Remember that almost half of this amount (Rs 75,000 crore) was meant for PM-Kisan. After the government expanded the coverage of PM-Kisan to include all land-holding farming families, irrespective of the size of their cultivable land, the annual outlay for this scheme was set to increase to Rs 89,000 crore.

In other words, PM-Kisan has become the single largest item in the government’s outlay for agriculture and allied activities. This is probably the most significant change in the government’s budget exercise for farmers in recent years. Direct cash transfer to bank accounts of farmers has become the biggest item of expenditure on agriculture.

That perhaps is the way forward. Let there be more direct cash transfer to the farmer and let her decide where and how she wants to use that money. That would be like a partial income support scheme for rural India. The incremental effect on demand should be substantial, the impact on farmers’ income would be significant and the additional expenditure burden as a result of that scheme would be relatively moderate.

Even if the annual cash transfer is doubled to Rs 12,000 per family, the additional outgo would be just about Rs 90,000 crore. In short, the Union Budget for 2020-21 could repackage NYAY (Nyuntam Aay Yojana or Minimum Income Guarantee Scheme), proposed by the Congress as part of its 2019 election manifesto and reap the benefits from reviving the rural economy. For the Bharatiya Janata Party (BJP), it would be a convenient and useful marriage between politics and economics. In the process, the BJP could adopt yet another idea from the Congress, repackage it and implement it, as it did with several other programmes like the national rural employment guarantee scheme, Aadhaar-based direct benefit transfers and the soil health card scheme.

To be sure, the government’s expenditure on agriculture is not restricted only to PM-Kisan or other schemes like crop insurance, interest subsidy for agricultural credit or pension for farmers. It also spends a substantial sum on fertiliser and food subsidies, which indirectly benefit the farmers. In 2019-20, for instance, the government is set to spend about Rs 80,000 crore on fertiliser subsidy and another Rs 1.84 trillion on food subsidy. The total government expenditure on schemes that benefit farmers, thus, is set to go up to Rs 4.15 trillion in 2019-20, compared to Rs 3.28 trillion in 2018-19 and Rs 2.19 trillion in 2017-18.

What can the Budget do to make these subsidies more effective and targeted towards the intended beneficiaries? A scheme that the Budget should experiment with and implement across the country is to use the direct benefit transfer formula for food grain procurement as well. Already, the government has ensured that the subsidy for fertilisers is released only on the basis of their actual sale to farmers.  It is now time to put in place a system where the procurement price for wheat and paddy is transferred directly to the farmers’ bank accounts, if necessary through an Aadhaar-based identification system. The state governments in Odisha and Punjab are trying out similar schemes for farmers in their respective states. The Union Budget for 2020-21 could consider rolling out similar schemes all over the country. It would be able to cut its costs on operating the subsidies scheme by preventing leakages. 

There is also a need for strengthening the existing food grain procurement system. The state-owned Food Corporation of India (FCI) is in deep financial trouble as the government is yet to clear its dues of over Rs 1.9 trillion. This is because for several years now, the government has been hiding its own expenditure liability on food procurement by transferring it to the FCI. Therefore, FCI’s ability to increase capacity to store more food grain is now constrained by its financial problems. The Union Budget for 2020-21 must take bold steps to tackle the FCI mess. To begin with, the government must take a one-time hit in its accounts and clear the FCI’s dues to help it start its operations on a clean slate. This could be followed up with steps like splitting the FCI into smaller units depending on their areas of operation and giving it operational autonomy.   

Finally, the Budget must pay attention to the need for increasing investment in agriculture. As outlined in the recently released report on the National Infrastructure Pipeline (NIP) , the Budget must provide necessary outlays for upgrading 22,000 rural haats (marts) into Gramin Agricultural Markets (GrAM), which should be exempted from the regulations of the agriculture produce market committees (APMCs) and linked to the national agriculture market (e-NAM) for online trading of commodities. There should also be adequate financial provisions for modernising the storage infrastructure and setting up cold storage facilities across the country to improve quality and shelf life of agricultural produce.

The NIP report has underlined the need for providing Rs 50,000 crore for creating such infrastructure facilities for the agriculture sector from 2019-20 to 2024-25. The least the Union Budget for 2020-21 should do is to provide a road map for such infrastructure investments to be made for agriculture in the coming years.