Many measures in the Union Budget for 2016-17 that put in place an elaborate package for agriculture and farmers' welfare are on the right lines. However, Finance Minister Arun Jaitley seems to have missed the opportunity to also simultaneously roll out certain much-needed reforms in areas like agricultural credit, farm subsidies and technology transfer. The underlying theme of the agricultural package - to enhance farmers' income - is sensible, given the steady erosion of profitability of farming and the consequent widespread rural distress. The measures mooted for this purpose range from enhancing agriculture's resilience to drought to ensuring more efficient and transparent marketing of farm produce through electronic platforms. The government also proposes to improve the efficiency of input use, especially that of water and fertiliser, by encouraging their need-based application as guided by the soil health records. Besides, it seeks to enable farmers to hedge their risks through the new highly subsidised universal crop insurance scheme. More importantly, the Budget promises to strengthen the supplementary sources of farmers' income by encouraging livestock rearing and generating more employment in rural areas. In fact, the measures like encouraging investment in cold storage as well as in the food processing industry are also aimed indirectly at boosting farmers' income. So also is the move to allow 100 per cent foreign direct investment in the retail trade of locally produced food products, though the effectiveness of this measure in the absence of foreign direct investment in retail is in doubt.
However, though the flow of subsidised institutional credit to the farm sector is proposed to be raised to Rs 9 lakh crore in 2016-17, no attempt has been made to target it more precisely. The finance minister could not be unaware of the observations made by the Reserve Bank of India's committee on financial inclusion in its recent report that agricultural production was not commensurate with the volume of credit being inducted into this sector. A sizable part of the money, obviously, doesn't reach where it should. More significantly, the committee pointed out that most funds were doled out as short-term crop loans, leaving largely unmet the need for long-term investment in productivity-boosting measures. Such flaws need to be corrected to make agricultural credit more productive.
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Moreover, the Budget has left largely unattended the long-overdue fertiliser subsidy reforms, although a pilot programme is to be run on direct subsidy payment to farmers. The more urgent need to reduce urea subsidy by decontrolling it and bringing it under the nutrient-based subsidy regime has been overlooked. Also disregarded is the need to substantially increase the funding for technology generation and its transfer to farmers to reduce their production costs and increase crop productivity. Another critical aspect that required revamping is the system of providing remunerative prices for farm produce. As pointed out in the paper brought out by the NITI Aayog's task force on agriculture, the present minimum support price (MSP)-based mechanism has failed to benefit the producer of most crops other than wheat and rice. It has suggested replacing this system with a novel "price deficiency payment mechanism" to ensure reasonable returns to all farmers and for all major crops. This system merits a fair trial.
