Union Budget and Agriculture: More Focus Towards Demand Side

P K Joshi

July 9, 2009 New Delhi

The 2009-10 budget was presented in a scenario of decelerating agricultural growth, rising food prices and growing uncertainty due to delayed and scanty monsoon. The agricultural growth has dipped to a low of 1.6 percent during 2008-09 compared to a high of 4.9 percent during 2007-08. Performance of food grains, oil seeds, sugar and cotton was very dismal during 2008-09 compared to 2007-08. This has led to rising wholesale prices of food commodities, but on the contrary the overall inflating was negative. The scenario in ensuing year is not too bright as the delayed and scanty monsoon would adversely affect agricultural production. Such a scenario warranted for more thrust to agricultural sector with respect to budget allocations and new programs. On this count the budget has not included adequate provisions for ensuring a four percent growth in agricultural sector.  On the other hand, the focus of this budget is more towards demand side through expanding the existing programs or initiating new programs and allocating more outlay for inclusive growth through social safety net programs.

To accelerate agricultural growth, credit sector received highest priority in the budget. Five areas have been proposed: (i) increased agricultural credit flow from Rs 2,87,000 crore in 2008-09 to Rs 3,25,000 crore; (ii) extended the interest subvention scheme for short-term crop loans up to Rs 3 lakh per farmer at seven percent interest rate;  (iii) additional one percent subvention of one percent as an incentives for timely repayment of crop loans; (iv) extended the loan waiving scheme for farmers having land more that 2 ha up to 31 December 2009; and (v) provision of constituting a task force for debt relief for those taken loan from unorganized sector. These are welcome provisions which are expected to increase lending in agriculture sector and encourage timely repayment.

Other components for augmenting agricultural production are related with ‘nutrient link fertilizer subsidy’, and higher allocation to accelerated irrigation benefit scheme and to the Bharat Nirman program. The nutrient link fertilizer subsidy is expected to promote more innovative fertilizer products, which may improve soil fertility and increase agricultural production. Under the Bharat Nirman program, more funds have been allocated for irrigation development, rural roads and rural electrification. Undoubtedly, irrigation development and rural electrification will contribute in enhancing agricultural production. But both water and power sectors, need to be reformed for improving their efficiency and governance through public-private sector partnership. Mere allocation of higher resources to these sectors may not commensurate in increasing agricultural production. Both these sectors need a medium- and long-term strategy for their efficient utilization in agricultural sector.

To promote private sector investment and reduce wastage, this budget has given tax incentives for setting-up and operating cold chains, warehousing facilities and storing agricultural produce. This will attract agri-corporate sector to invest in developing value chains to reduce wastage of perishable commodities and increasing storage capacity of agri-commodities. Similarly, excise duties are reduced for wool waste and cotton waste from 15 percent to 10 percent.

The budget is more biased towards inclusive growth through strengthening existing social safety net programs or announcing new ones. Most important among these are National Rural Employment Guarantee Scheme and National Food Security Act. The former is related with empowering poor through generating employment opportunities and increasing purchasing power, while the latter is making food available to the poor at a subsidized rate. The National Rural Employment Guarantee Scheme has provided employment opportunities to more than 44.7 million households; its budget outlay has been increased by about 144 percent to Rs 39,100 crore for 2009-10. Provision has been made for conversance of this program with other schemes related to agriculture, forests, water resources, land resources and rural roads in 115 pilot districts to begin with. While it is welcoming, the need is to develop mechanisms for the sustainability of the program. There is a need to link this program with capacity development and skill improvement of the beneficiaries so that in the long run they gradually move to non-agricultural sector.  Another flagship program of the government in coming year would be the Food security Act which would guarantee 25 kg per household rice/wheat at the rate of Rs 3 per kilogram. Through this government intends to target population below poverty line (approximately 6.52 crore families). It is good that the scope for debate has been provided so that a transparent and effective governance system is created to benefit the poorest of the poor in the country.

Growing fertilizer and food subsidies are fattening non-plan expenditure and adding to the fiscal deficit. This is a matter of serious concern. Both fertilizer and food sector need overall reform by evolving more innovative institutional and governance mechanisms to reduce the inefficiencies. The budget has also disappointed in important areas related to seed sector, rainfed agriculture, high-value agriculture, animal husbandry and forestry. The budget speech has encouraged corporate sector by giving incentives to promote research and development. In agriculture sector, it would have been more rewarding if the private seed sector was given incentives for seed production of pulses and oilseeds to augment their production and reduce import dependence. Similarly, the rainwater conservation needs a major thrust by galvanizing rainwater harvesting, conservation and utilization for increasing agricultural production and recharging groundwater. Also the budget missed the horticulture, livestock and fisheries sectors. These are the key sectors which largely contributed in the growth of agricultural sector. Their demand is also increasing exponentially. These deserve more attention and programs for boosting agricultural production and accelerating agricultural growth on a sustainable manner.

To sum up, the budget is more focused for inclusive growth but little is for accelerating agricultural growth. It is more towards ensuring ‘household food security’ than achieving ‘national food security’. A balance approach is warranted for augmenting agricultural production and ensuring food security for sustainable agricultural development and poverty alleviation.

Source: Director, National Centre for Agricultural Economics and Policy Research, New Delhi.
Note: The views expressed are of the author and not of institution he belongs.