F&A in the Indian Union Budget
“Transforming India” is the main theme of the recently published Indian Union Budget for 2016-17, and “Agriculture and Farmers’ welfare” is one of the nine pillars going forward. The budget intends to look beyond food security and give farmers a sense of income security with a target to double farmers’ income by 2022.
While allocations in the budget are partly a reaction to the recent troubles facing the farm sector—think of the recent drought and farm distress— some of the resource allocation has clearly been done with capital formation and long-lasting consequences in mind. The medium-term objective of doubling farmer income has provided context for this year’s budget, as well as a roadmap for the following years. However, without addressing other structural issues like soil nutrition, yield potential of crops; and at the same time correcting distortionary production incentives and trade policies, these objectives may remain an unaccomplished dream. Or is solving all these issues too much to expect from one single budget?
Two consecutive years of drought, together with depressed commodity prices seem to have weighed on the government when drawing up the budget for the farm sector. The allocation for planned expenditure for the farm sector is up 27% over the revised estimates for the current fiscal year. The revamped Crop Insurance scheme, launched by the government earlier in the year, got a boost with a doubling of budget spend. Similarly, irrigation spend is budgeted to increase by 42% with a directive to fast-track and revive stalled projects.
Water resource in Agriculture
Estimates reveal that irrigation covers only 46.9% of the total cropped area in the country, leaving the rest to the mercy of monsoon. Under the budget plan, 89 irrigation projects are set to be fast tracked, which will help to irrigate 8.06 m hectares. Budget allocation for irrigation will bring an additional 2.85 million hectares under irrigation. A Long Term Irrigation Fund with the National Bank for Agriculture and Rural Development (NABARD) underlines the government’s efforts in reducing Indian farmers’ dependence on rainfed agriculture.
The Economic Survey 2016, a prelude to the Union Budget was critical about the water resource management in the country, especially related to agriculture activity, with India’s water tables declining at a rate of 0.3 meters per year. A budgeted INR 60 bn (USD 1 bn) for sustainable management of ground water resources, shows intent to encourage investments in sustainable practices.
This year’s budget failed to unveil any significant measures to address the core problem of nutrient imbalance in Indian soil, a consequence of years of distorted nutrient subsidy policies. However, the budget has proposed to introduce Direct Benefit Transfer (DBT) subsidy on a trial basis for fertilizers in a few districts. DBT would significantly reform subsidy distribution as it will likely empower farmers in making rational decisions on nutrient application.
The year’s budget reduced the total fertilizer subsidy allocation. The budget notably did not address subsidy dues pending for the fertilizer industry, and therefore a large share of freshly-allocated funds will go towards paying the arrears. There was no announcement on the much talked about de-canalization of urea, which would open up the import of N-fertiliser.
The Economic Survey also observed the absence of an integrated market for farm produce in India. This is reflected in a high price dispersion (ratio between the highest and the lowest price for a produce in the country) and price wedges (between farm gate and wholesale market, and wholesale market and retail).
The budget indicates fast-tracking of the implementation of the Unified Agriculture Marketing Scheme, a common e-market platform in 585 regulated wholesale markets.
Allocations for rural road infrastructure were doubled in the budget. The target to upgrade 375,000 km of existing rural roads—to bolster full farm to market connectivity—should also get a booster from this allocation.
The budget also includes duty reductions for cold infrastructure equipment. These investments—together with the impending introduction of uniform GST (Goods & Services Tax)—will help in the integration of farm markets, which in turn should help to increase farmer income.