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Budget 2020 pays little more than lip service to farmers and agri sector. Just like last year

Nirmala Sitharaman's Budget has missed the opportunity to give farm sector the much-required thrust. And by reducing food & fertiliser subsidy, it has made matters worse.

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Budget 2020 pays little more than lip service to India’s farmers and agriculture sector, just like last year.

PM Narendra Modi’s dream of doubling farmers’ incomes by 2022 again found a mention in the Budget presented by Finance Minister Nirmala Sitharaman. While it is heartening to see that the Modi government is not giving up on it, the growth witnessed by the agriculture and allied sector in the last four years shows the gap between the dream and grim reality.

As per the Dalwai Committee Report, average annual growth rate required to double farmer incomes by 2022-23 is 10.4 per cent. But the latest Economic Survey shows, gross value added (GVA) in agriculture, fishery and forestry grew at an average rate of about 3.9 per cent between 2015-16 and 2018-19.

That leaves just three years to double farmers’ incomes. And this Budget is not really the magic pill the sector needed. It had some good and some not-so-good points, but was mostly a missed opportunity.

Also read: No big fiscal stimulus in Nirmala Sitharaman’s Budget 2020, but govt can still do it later

The good

The 16 action-points are commendable because they address agriculture as a value-chain. The increased focus on creating efficient storages, new modes of transportation (Krishi Rail and Krishi Udan), promoting cluster-approach to agriculture production, connection with e-NAM are welcome announcements.

By reiterating the importance of implementing the 2016 Model Land leasing Act, the APLM 2017 and Contract Farming Act 2018, the budget has rightly encouraged states to implement them.

In current times of agrarian distress, agriculture credit is crucial for the farmer and by expanding the credit target to Rs 15 lakh crore, the Budget has addressed the issue well.

Focus on milk processing is also a good step and the aim to double milk processing capacity in India from 53.5 million tonne to 108 million tonne by 2025 will boost incomes of dairy farmers.

Also read: A 16-point agenda to double farmer income & boost agriculture, but only 3% jump in outlay

The not-so-good

In real terms, the overall Budget for agriculture, irrigation and allied activities have gone down. For the year 2020-21, the Budget allocation is Rs 1.57 lakh crore and in 2019-20, this allocation was about Rs. 1.52 lakh crore. This means that between the two years, the growth in Budget allocation is only about 3.5 per cent. After accounting for average inflation of about 4 per cent, this translates to a negative real growth rate in allocation for the sector.

Budget not spent

The gap between Budget estimate (BE) and revised estimate (RE) for 2019-20 is huge. As per the Budget documents, only 80 per cent of the budgeted amount for the agriculture, irrigation and allied activities was spent last year. This gap is high for schemes like PM-KISAN where only about 73 per cent of the budgeted amount was spent. It is intriguing to see how in a year when the economy was and continues to ail, the Modi government has not spent the money it budgets to spend.

Fall in food and fertiliser subsidy

From Rs 1.84 lakh crore in 2019-20, the food subsidy budget has been reduced to Rs 1.16 lakh crore. There are two points to note here:

1. For 2019-20, the revised estimate of food subsidy is lower than the budgeted value. If the economic cost of Food Corporation of India (FCI) for rice and wheat have been rising, the central issue price (CIP) at the ration shops have been constant, and the grain offtakes for distribution under various food-based welfare schemes have been rising, then how can the food subsidy bill not rise commensurately? As in the past, the Modi government has been delaying the payment of the food subsidy expenditure incurred by the FCI (outstanding unpaid bills of the FCI as on 31 March 2019 were to the tune of Rs 1.85 lakh crore) and, as a result, the FCI has been forced to borrow money from the market to meet its needs.

2. It is also interesting to see how the food subsidy under the decentralised procurement scheme (DCP) has not gone down, but only the food subsidy payable to theFCI has. This is the case because any government can’t default on payment under the DCP scheme to the states, but the government can default in paying the FCI, as it appears.

If the reduction in food subsidy is any signal, then together with the Economic Survey released Friday, which states the requirement to make food subsidies sustainable by increasing the central issue price and/or reducing the National Food Security Act (NSFA) coverage from the current 67 per cent, one can infer that the NFSA coverage will be shrunk in the coming year. Among other things, this will mean that the grain procurement paraphernalia (minimum support price or MSP), which provides the grains that are supplied under NFSA, will have to be shrunk too. This means that the number of farmers or per cent of crops benefiting from the MSP regime is likely to go down in the coming year, unless there is any other mechanism designed to compensate them.

There has also been a fall in fertiliser subsidy from about Rs 80,000 crores in 2019-20 to about Rs 71,300 crores.

Now, if the MSP regime is shrunk and fertiliser subsidy is reduced, then in effect, what we are doing is raising the cost of cultivation and reducing the (assured) income of the beneficiary farmer. Clearly, that is not likely to go together with the dream of doubling farmer incomes at least in the coming year.

Also read: Modi wants to double farmers’ income by 2022. But it is only their debt that’s growing

Climate change

With the effects of climate change on agriculture becoming starker with each passing year, we all had hoped that the Modi government would take cognizance of this and increase budget allocation for at least the rainfed areas. Interestingly, allocation under the head “rainfed area development and climate change” has gone down from Rs 250 crores in Budget 2019-20 to about Rs 202 crores in Budget 2020-21.

Overall, it is a Budget that has largely missed the opportunity to give the much required thrust to the farm sector that is in distress today. However, the Budget is not the end all be all, it just marks a beginning for the year, and I hope that PM Modi will stand by farmers and undertake bolder reforms to boost the agriculture sector through the year.

The author is a Senior Consultant with ICRIER. Views are personal

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