Budget Expectations: Agriculture Sector

21 Jan 2022 , 12:36 PM

Back in 2015, Prime Minister had underlined the commitment to double farm incomes by 2022. That may be pushed back by 2 years due to the pandemic, but the aggressive MSP policy has surely helped the cause. In the Union Budget 2021, the government had a farm credit target of Rs16.5 trillion, which is likely to be revised in Budget 2022 to Rs18.5 trillion.

Agriculture Challenges that Budget 2022 needs to address

While farm incomes and agricultural credit are largely macro issues, the real challenge is in the micros. After all the devil lies in the detail.

Here are the major expectations from the Union Budget on agriculture.

1. What the budget can do at the ecosystem level. Cheap credit to farmers is the key. The budget must look at directed credit at more subsidized rates for purchase of equipment, irrigation and other long term investments. Focus has to shift out of expendables funding into long-term funding. Secondly, crop insurance is the key to agricultural growth and build buffers. Budget must focus on expanding the crop insurance scheme.
2. It is time to bite the bullet on incentivizing innovative farm techniques. Drip irrigation can make a huge difference in a water-scarce country like India. Special incentives, tax breaks and easy credit are called for. Similarly, a boost to lift irrigation and vertical farming can go a long way in addressing the problem of scarce farm land. Budget 2022 needs to incentivize such innovations.
3. There is not enough investments happening in pre-sale and post-sale infrastructure. For example, quality checks and monitoring of soil is a key data point. This can be enabled by bigger allocations to mobile soil testing labs. In addition, there is inadequate warehousing, cold storage, low wastage transportation etc. Unless that happens, supply chain constraints will plague the agri ecosystem. Government can incentivize setting up of warehousing facilities, cold storages, primary pack-houses, refer vans via PPP. Agricultural infrastructure can also be tax incentivized.
4. Import substitution must be a major theme in this budget. There is still too much of import dependence on vegetables and edible oils. India has become self-sufficient in pulses but it still has to import edible oils to the tune of $10 billion annually. Ironically, India had achieved self-sufficiency in edible oils as early as 1990. Budget 2022 must focus on bringing India’s domestic strength back in edible oils to cut back imports.
5. Incentivize farmers to diversify their income sources. For example, organic farming has seen rapid growth post the pandemic. The budget must offer clear incentives to farmers for crop diversification into sustainable areas. Budget can incentivize farmers to diversify into resilient and nutritious crops like sorghum and millets. This should help achieve targets under the Paris Agreement.
6. India’s fertilizer mix is strongly in favour of Urea as opposed to potassic and phosphatic fertilizers. That is largely due to low cost of Urea. This had a negative impact on soil health. The budget must tweak the DBT scheme to incentivize reducing excess dependence on Urea.
7. The budget must make a start by giving a big push to agricultural research. As a share of agricultural GDP, India spends just about 0.35% on agricultural R&D. China spends 0.80% and most of Asia and other emerging markets spend much higher than India does. A recent CGIAR report has underlined a cost-to benefit ratio of 10:1 from an increase in agricultural R&D. The positive impact of higher agricultural R&D spending is visible not only in soil quality and output, but also in agricultural incomes.
8. One thing that the markets are expecting from the Union Budget is more clarity on the status of the Farm Bills, especially with respect to marketing of farm produce. The 2 year long farmer-agitation is over and the government has withdrawn the bills in the recent winter session. However, for the economy, the agricultural reforms are still the key. Farmers need to be given a choice rather than just tying them down to designated mandis, where the large brokers dominate price setting. Budget 2022 needs to provide clarity on this subject, especially on giving a wider marketing choice to the farmers.

Use of technology and entrepreneurship in agriculture

The points mentioned above are important and have been parts of most routine budgets in some form or other. Budget 2022 must effect a quantum shift in the use of technology and entrepreneurship in agriculture. Here is how.

• Greater information sharing with farmers on weather, all-India prices and government policy can go a long way in making farmers more aware and in making better decisions.
• For a long time there was talk about helping farmers sell their produce through the futures market. The budget must put the action plan in place.
• Above all, it is time to create agri-entrepreneurs. There are already enough agri-start-ups in the market. Budget 2022 must focus on incentivizing these start-ups for extending many of their pioneering services to actually benefit the farmers.

In the midst of the 2 years of pandemic, the only sector to show positive growth in both years is the agriculture sector. It grew at 3.4% in both years and actually held up the GDP. A big boost from the government in Budget 2022 can do wonders.