<b>C S C Sekhar:</b> Budget - positive for agriculture

One shortcoming is that there is little attempt to incentivise states to invest more in agriculture. Much of the growth in agriculture between 2004-05 and 2011-12 was due to increased investment by the states

Budget 2016-17 contains many positive initiatives for agriculture and rural development. After an encouraging performance during the Eleventh Five-Year Plan period, agricultural growth stuttered in the last few years, with a growth rate of 1.5 per cent in 2012-13, followed by 4.2 per cent and -0.2 per cent in the next two years. The latest estimates from the CSO indicate that 2015-16 will be only marginally better, with a projected growth rate of 1.1 per cent. Notwithstanding two consecutive droughts, structural problems ranging from irrigation to input provision to marketing are responsible for this deceleration. The Budget attempted to address some of these long-standing issues faced by agriculture. The positive initiatives proposed in the Budget broadly relate to irrigation, rural infrastructure and marketing.

One of the major problems of Indian agriculture is its overdependence on the monsoon. Only about 45 per cent of the cropped area in the country is irrigated, which results in widespread production uncertainty. The Budget attempted to address this through the Pradhan Mantri Krishi Sinchai Yojana (PMKSY) with an outlay of Rs 17,000 crore. This programme aims to bring an area of 28 lakh hectares under irrigation, reinvigorate defunct irrigation schemes thereby benefiting 81 lakh hectares and also harness groundwater resources. These, together with the proposed long-term irrigation fund of Rs 25,000 crore, are positive initiatives for long-term growth in the agricultural sector.

Credit constraints have been an important bottleneck in agriculture. The share of long-term (investment) credit has declined sharply from 55 per cent in 2006-07 to 39 per cent 2011-12. The target for agricultural credit in the Budget has been increased to Rs 9 lakh crore, which is Rs 0.5 crore more than last year. An additional provision of Rs 15,000 crore has been made for interest subvention. These measures should help relax the credit constraint to an extent. However, much will depend on the access to credit of the actual cultivators, which depends on the legal right to land and formal tenancy. Therefore, tenancy reforms and modernisation of land records need to be taken up urgently.

A revamped crop insurance programme has been announced recently to address crop losses due to vagaries of the climate. An allocation of Rs 5,500 crore has been made to this scheme. The attractive feature of the scheme is that there is no cap on premium and therefore, there is no reduction of the sum assured. However, this programme covers only production shocks whereas market (price) shocks still need to be borne by the farmer. This needs to be corrected through products for price/revenue insurance.

The Budget also proposes to encourage more states to undertake decentralised procurement through online procurement. The details of this scheme need to be worked out, though. There are also proposals to build a buffer stock of pulses and to automate three lakh fair price shops. About 585 regulated markets are proposed to be connected under the National Agriculture Market (NAM) programme. However, the states need to amend their respective Agricultural Produce Marketing Committee Acts (APMC) to implement this. This also involves a single licence across the state, single-point levy of market fee and electronic auctioning system for price discovery. At present only 12 states have amended their APMC Acts and action is needed from other states to fully operationalise this.

Agriculture also benefits from the allocations made for rural development. The biggest allocation for the rural sector comes from the increased grants-in-aid to gram panchayats and municipalities to the tune of about Rs 2.87 lakh crore. This is likely to translate into Rs 80 lakh per gram panchayat, which is substantial. These increases in allocations should spur rural spending, which in turn should help generate employment in the rural non-farm sector.

There are a few shortcomings in the Budget, though. There is little attempt to incentivise states to invest more in agriculture. Given that agriculture is a state subject, this is very important. Gross capital formation in agriculture (as a percentage of the gross value added in agriculture) has declined from 18.3 per cent in 2011-12 to 15.8 per cent in 2014-15. This sharp fall in investment during the last few years is in sharp contrast to the rapid increase since 2004-05. Much of the positive growth performance of agriculture after 2004-05 until 2011-12 was due to increased investment by the states. The Budget lacks effective proposals/incentives to encourage states to invest more in agriculture.

The second shortcoming is the absence of region-specific initiatives. Agro-climatic conditions vary greatly in India and any programme needs to factor in local conditions to be successful. Irrigation programmes under PMKSY and other programmes need to be dovetailed with district agricultural plans prepared by the states, to be successful. The success of many of the proposed initiatives - such as credit access or crop insurance - hinges crucially on correct identification of the beneficiary. Thus, modernisation of land records, establishment of secure property rights and undertaking of tenancy reforms are crucial to the success of many of the proposed initiatives.

Overall, however, this is an encouraging Budget for agriculture after somewhat lukewarm treatment received by the sector in the last two Budgets.
The writer is Associate Professor, Institute of Economic Growth, Delhi University
csekhar@iegindia.org