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A renewed focus on agriculture: How the budget 2017 hasn’t got it quite right

The overarching goal to double agricultural income in five years will be impossible unless one gets the wherewithal for markets right

analysis Updated: Feb 02, 2017 17:24 IST
Union Budget 2017,Agriculture,Markets
A farmer sprays fertiliser in a paddy field on the outskirts of Ahmedabad. The Union Budget proposal to increase insurance coverage to 40% is potentially a far-reaching one(AP)

This budget is distinctive for its strong focus on the agriculture sector. It announced a host of allotments for big programmes such as 1 lakh crore increase in target agricultural credit, targeted increase in crop insurance coverage to 40 %, institution of a dairy processing fund, bringing more markets on the electronic National Agriculture Market (e-NAM) platform, micro-irrigation fund, assistance to set up soil testing in Krishi Vigyan Kendras among others. The overarching goal that’s somewhat arcane is to double agricultural income in five years. This is something that will be impossible unless one gets the markets right. Market is a forum for interaction of demand and supply. Hence, getting the markets right involves incorporating the role of both sides of the market.

Among the lofty goals for agriculture, where the budget probably falls short and one that can come back to limit its impact on the agriculture sector is that in several programmes, the demand side and how budget can spur it has been somewhat overlooked. Consider the proposal to link 585 markets with e-NAM platform. Farmers may be equipped to sell but there must be buyers willing to purchase from far off places. In food markets without credible markers for quality and safety, transactions with anonymous sellers from far off places are unlikely to be realised. The mere 75 lakh allotted for each linking the mandi for upgrading to join the national agricultural market including setting up of testing and assaying facilities seems quite inadequate. And, there has been no provision for third party certification.

Read: Budget 2017: Jaitley refrains from taxing agricultural income despite ‘low’ taxpayer base

Similarly, consider the proposal to expand the system of soil health cards. There is no doubt that imbalanced application of different types of chemical fertilisers remains a serious and widespread problem in India. The government is also faced with the rising costs of fertiliser subsidies. The over-application of urea has led to an imbalance that has affected agricultural productivity. Soil health cards can in principle correct this problem but would require farmers to demand it. Getting urea use down by 20-25% which is envisaged with soil health cards would cut down from over 80,000 crore in fertiliser subsidy and could be put to other uses in agriculture. However, unless less chemical usage is rewarded, research shows that uptake of soil health cards has been quite low. In the same light the earlier survey from Food Safety and Standards Authority of India which found 70% milk contaminated underscores the point about quality and safety systems else the benefits would be limited for dairy development fund.

The programme to increase insurance coverage to 40% is potentially a far-reaching one. The model with low premium will work only if enough farmers join. Until now insurance was force fed to the farmers as borrowing from banks was conditional on having insurance. As long as premium is non-zero, inducing greater buy in of insurance products would require special interventions. The same applies for the utilisation of credit for rightful purposes and preventing its diversion to non-agriculture activities. Expanding credit without funneling it to agriculture usage can be counterproductive especially in times of rising non-productive assets of the banks.

Read: Union Budget 2017: Arun Jaitley plays kisan channel to ease farm distress

At a philosophical level this budget was a lot about behavioural change. When it comes to agriculture, the emphasis on behavioural change is downplayed. This could actually undermine the impact of comparative generosity towards the greatest employer of India that is agriculture.

Devesh Roy is a research fellow at the International Food Policy Research Institute based in New Delhi

The views expressed are personal

First Published: Feb 02, 2017 17:24 IST