 "Budget Watch: Why Ashok Gulati thinks Budget 2024 may have a populist tinge")
As the Narendra Modi government prepares to present its first Budget in its third term, all eyes are on the rural and agriculture sectors, which are understood to be a critical factor in reducing the number of seats for the Bharatiya Janata Party (BJP) in the Lok Sabha elections. Eminent agriculture economist and Infosys Chair Professor for Agriculture at the Indian Council for Research on International Economic Relations (ICRIER) Ashok Gulati tells Sanjeeb Mukherjee that the Union Budget could have a distinct populist tinge due to the electoral setback for the ruling BJP. Edited excerpts:
What are your expectations from the Union Budget of FY25 for the rural and agriculture sector, given that the performance of the Narendra Modi government has not been awe-inspiring in the just-concluded elections?
My expectations from the Union Budget for the rural and agriculture sectors are high, especially considering the recent performance of the ruling government in the 2024 general elections. The government needs to acknowledge the challenges faced in rural areas, particularly the decline in the agriculture growth rate to 1.4 per cent in FY24, which has resulted in the loss of rural-dominated seats.
The government should prioritise two key areas. Firstly, there should be a substantial allocation for climate-resilient and smart agriculture to mitigate the impact of climate change. This includes increasing the budget for agriculture research and development to at least 1 per cent of the agriculture GDP, as it is currently less than 0.5 per cent. This will require a significant increase in the budget for agricultural research and development, potentially doubling it within two to three years.
Additionally, the government needs to address food inflation, especially for vegetables and pulses. The current inflation rates for essential vegetables such as tomatoes, onions, and potatoes are concerning.
The existing scheme to address this, called Tomato, Onion, and Potatoes (TOP), needs to be evaluated and possibly moved out of the ministry of food processing. A new value-chain model similar to the National Dairy Development Board (NDDB) for milk is needed to ensure fair pricing for farmers and consumers.
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Furthermore, the government should consider shifting the fertiliser subsidy from the ministry of chemicals and fertilisers to the ministry of agriculture and directly providing it to the farmers. This move, along with freeing up the prices of certain fertilisers, could promote balanced pricing and usage, potentially saving a significant amount in subsidies.
Do you think that the electoral setback will have an imprint on the budget for rural and agriculture? Will it be a populist Budget or a reformist?
It can be a populist Budget because of the electoral setback. One reason for the setback is the impact of climate change, which has led to a decrease in the growth rate due to El Nino.
This can be addressed by increasing investment in research on climate-resilient agriculture. Another way to overcome the electoral setback is by distributing freebies.
To achieve this, the PM Kisan scheme could be augmented to Rs 8,000 per annum.
However, if we want to compensate for the restrictive practices such as dumping of wheat and rice to control prices, we need to do more. The Food Corporation of India (FCI) unloaded 10 million tonnes at a price way below the economic cost of wheat, resulting in adverse effects on farmers.
Our calculations show that due to this dumping, farmers lost around Rs 40,000 crore just because of wheat.
To compensate for this, the PM Kisan scheme should be increased to at least Rs 10,000 per household.
However, the challenge is that PM Kisan is based on a household basis, not on a per-hectare basis, and it only benefits owner-operated households, not tenants.
We need to streamline the tenancy business and make use of technology to identify the stationary plots, digitalize the land records, and open a portal for tenants.
This would ensure justice for at least 25 or 30 per cent of the peasantry. This could be a way to overcome the electoral setback. It's a question of whether to give handouts, and income transfers, or to invest in more vibrant, protective, and climate-resilient agriculture. We should focus on the productive side.
If farmers are not allowed to get the right prices and access markets, they are being denied their fundamental rights.
The trade policy is heavily skewed in favour of consumers, and this consumer bias needs to be neutralised by providing compensation to the farmers through handouts.
In conclusion, the trade policy needs to be balanced to ensure fairness for all stakeholders, including farmers.
You have banned almost all commodities, and allowed free import of almost all big oil seeds and pulses. We have repeated stock limits on everything. So, do you see these kinds of things being looked at in the Budget?
A Budget is mainly for allocating resources, especially financial resources. What you just talked about is very critical and should be integrated into the country's agriculture policy because it's currently harming the farmers and favouring the consumers at the farmers' expense.
For example, there are regulations from the 1950s and 60s under the Essential Commodity Act that are causing issues.
The introduction of stocking limits and reduction of import duties are driving market prices below the minimum support price (MSP). We need to find a balance between the interests of the farmers and consumers, aligning our trade policy with domestic price policy.
This seems like a knee-jerk reaction, possibly driven by the upcoming election and an exaggerated fear of inflation. However, these controls are effectively taxing the farmers and may not be the best solution.
Two events that happened a few days ago symbolise what exactly is wrong with the whole agriculture policy in India. In the morning, the new agriculture minister, while holding a meeting with the states, asks them to go in for pulses, more self-sufficiency in pulses, and promises assured procurement of three pulses. By evening, the consumer affairs ministry comes out with a notification imposing a stock limit on pulses. How do you view these developments?
The issue at hand is typical of a monolithic government structure. The consumer affairs ministry is tasked with lowering prices for consumers, who want everything to be free or at very low prices.
On the other hand, the ministry of agriculture is focused on securing higher prices for the farmers. These two goals are contradictory. It would be best if the same minister oversaw agriculture and food as well as consumer affairs to reconcile these conflicting interests. Currently, the two ministries are working in opposing directions.
Coming back to the question of ministries, we have a very dynamic minister, Shivraj Singh Chauhan, for agriculture and rural development. Do you see his imprint being there in the Budget?
We hope so. His experience is commendable, particularly his work in Madhya Pradesh. From 2005 to 2023, the state saw remarkable agricultural growth at 6.8 per cent, with an overall GDP growth of 7 per cent.
This is a unique combination, not seen in any other state.
Nationwide, the agricultural GDP growth was 3.5-3.6 per cent during the same period, while the overall GDP growth was around 6.5 per cent.
The challenge now lies in maintaining good prices for farmers amid the possibility of price falls and free imports affecting the market.
The focus should be on ensuring prosperity and productivity in the agriculture sector, which requires the support and understanding of not just the state cabinet, but also the finance minister, prime minister, and other colleagues.
Do you see any big changes in the budget for the rural development ministry?
As you may know, MGNREGA represents the largest allocation in the rural development ministry. How this allocation is crucial. MGNREGA was established to address the demand for work when agricultural labourers are not occupied or during periods of drought.
Currently, these labourers are not allowed to work on farmers' lands. There is a lack of coordination between the needs of farmers and the work done by MGNREGA workers.
It is important to create a synergy to improve soil and water conservation techniques so that farmers can benefit from this programme.
Alternatively, MGNREGA funds could be allocated towards rural housing, which creates more productive employment and long-term assets and jobs. It is essential to engage rural people in developing rural infrastructure.
The rural non-farm sector hasn't done very well. The sector is struggling in that sense. So, what is your prescription to put it on a growth trajectory so that the non-farm sector also grows simultaneously?
The non-farm sector, including artisans, micro, small and medium enterprises (MSMEs), and agro-industries in rural areas, depends on the status of agriculture.
If agriculture is in trouble, then the agro-industry also suffers. Most of these businesses are located in rural areas, near sugar mills, rice mills, dal mills, and oil mills.
The well-being of these industries is closely tied to the state of agriculture.
Creating better value chains in the agriculture sector would lead to significant job creation.