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Importance of the Budget for agriculture sector

By, New Delhi
Jan 27, 2023 03:48 PM IST

Agriculture accounts for about 15% of the GDP but employs more than 40% of Indian workers

Agriculture accounts for about 15% of the GDP but employs more than 40% of Indian workers. One of the most ambitious promises made by the National Democratic Alliance government, after it assumed office in 2014, was to double farmers’ incomes by 2022. Evidence from the latest Situation Assessment Survey (SAS) shows that farming continues to be crisis ridden and is increasingly becoming a marginal occupation for farmers (https://bit.ly/3H3WZJJ). What role does the Budget play as far as government spending is concerned? Here are five charts which explain this in detail.

A farmer harvests mint in Karnataka. (AFP)
A farmer harvests mint in Karnataka. (AFP)

How much does the central government spend on agriculture?

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The answer to that question is not as simple as one might think. This is because spending relevant to agriculture takes place through multiple ministries. The ministry of agriculture’s annual spending, as per the Budget Estimates in 2022-23, is 1.33 lakh crore. The “Budget at a glance” document for the 2022-23 Union Budget puts total agricultural and allied activities spending at 1.5 lakh crore. A rough calculation suggests that this number might include spending on irrigation under the Jal Shakti ministry and some other minor heads. To be sure, the actual central government spending on agriculture is much more than this amount. This is because of spending on two major subsidy heads, food and fertilisers. India’s Public Distribution System (PDS) uses grains procured from farmers at minimum support prices (MSP), which is distributed to beneficiaries at a negligible cost. Similarly, the government subsidies fertiliser manufacturers to provide cheap fertilisers to farmers. While all of this spending does not directly reach farmers, a large part of it does benefit them. A holistic measure of central government support to farmers, should therefore, include the money spent on these heads. Centre for Monitoring Indian Economy (CMIE) data provides a disaggregated classification of spend on agriculture and allied activities under various heads. It shows that total spending on agriculture has been significantly larger than what the ministry of agriculture’s annual allocation is.

See Chart 1: Total spending on agriculture

But there is very little spending as far as future of agriculture is concerned

The tragedy of India’s agriculture spending, however, is reflected in the predicament of the average Indian farmer: most of it is hand-to-mouth in nature. The proof of this can be seen in the paltry allocation to agriculture research and development (R&D). In 2022-23, central government spending on this head was 8,013 crore, which is just 6.4% of the total spending by the ministry of agriculture. Government spending on agricultural R&D is important because, unlike in the case of industry, farmers do not have the economic wherewithal to undertake such activity on their own. Total capital spending on agriculture, as per CMIE’s database – this includes spending by other ministries as well – was just 1.1% of the total spending on agriculture in 2022-23. This is significantly lower than the overall share of capital spending by the central government (19%).

Chart 2: Share of capex in total agriculture spending

Still, the Centre does spend more on agriculture than the states

Agriculture, technically speaking, is under the state list in the Constitution. However, strategic considerations of food security and the sector’s political importance have made sure that the Centre spends more on the sector than what is spent by the states put together. This is unlike the case for overall government spending, where the states now outspend the centre (https://bit.ly/3XUla44). The Centre’s share in total agricultural spending received a big boost when the government announced the PM-KISAN scheme in 2019.

Chart 3: Share of central and state spending in agriculture

Central and state spending is of a very different nature

While the Centre has a majority share in total government spending on agriculture, state spending cannot be considered unimportant at all. This is because the spending priorities of the two levels of government are significantly different. An analysis of the CMIE database shows that state spending has a much bigger share than central spending in crucial agriculture and allied activities such as animal husbandry, dairy development, and fisheries.

Chart 4: comparison of central and state spending in various sub-sectors

Per-farmer agricultural spending by different states varies vastly

The importance of agriculture and share of farmers in the total workforce varies significantly across Indian states. This also means that per farmer spending in states varies significantly. One way to compare this is to look at total spending by states per agriculture household. In the latest (2019) SAS, an agricultural household is defined as one that produced field or horticultural crops, livestock, or other specified agricultural products worth more than 4,000 and had a member self-employed in agriculture in the 365 days preceding the survey.

Government spending per per agricultural household in 2022-23 varied from 9,264 in Uttar Pradesh to 99,768 in Tamil Nadu. Because states are the bigger contributors (compared to the central government) in the spend on animal farming, it might be useful to check if this big difference persists in the spend on animal farming. This can be done by calculating the combined expenditure on animal husbandry, dairy development, and fisheries, and dividing it by the number of animal farming households. Even this spending varies widely across states: from 2,637 in Uttar Pradesh to 29,562 in Telangana in 2022-23.

The reasons behind such wide differences can be many. One possible reason is fiscal capacity. If a state’s per capita spending in general is relatively lower, it will find it difficult to spend better than other states on agriculture, too. On the other hand, a state can also choose to spend less on agriculture. Whatever the reasons, it means that farmers in different states of India enjoy drastically different amount of government support.

Chart 5: Per farmer spending in states

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  • ABOUT THE AUTHOR
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    Abhishek Jha is a data journalist. He analyses public data for finding news, with a focus on the environment, Indian politics and economy, and Covid-19.

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