Budget-2021: 10 suggestions for the agriculture sector

01 Feb 2021

All eyes are already set for the announcements to be made by the Finance Minister for the farm sector, while presenting the Union Budget on February 1. The reasons are not hard to find. The ongoing farmers’ agitation amidst several rounds of discussions (without any resolution so far) has heightened the expectations.

The three ordinances promulgated in June 2020 and later on passed by the Parliament (now popularly known as the new farm laws), according to many Economists and Policy analysts, have generated lot of hopes to actualize the potential of Indian Agriculture and bring additional returns and profitability to the farm sector. However, uncertainty still shrouds the implementation in view of the ongoing protests. Moreover, the outcome will also depend on the final verdict of the Apex court. In such a scenario, policy watchers and people interested in the agriculture economy of the country are keenly awaiting this year’s budget announcement for the farm sector. Here is a list of ten priorities that could holistically benefit the farm sector.

1. The self-sufficiency in pulses is becoming a reality with production of the proteinous crops going up in recent years and the import burden consequently falling down. This is indeed a good news. On the other hand, the import bills of edible oils are sliding up with insufficient domestic production and an increasing consumption by a growing population. As per available figures, the import bill in 2019 was to a whopping level of USD 10 billion. This is a worrisome development, as India had almost reached self-sufficiency in edible oils in the early 1990’s. It is high time the Union Government thinks of a targeted approach, as done in the 1980’s through the Technology Missions on Oilseeds. It is interestingly to note that there is an enhancement of crop coverage to the tune of 3.3 lakh and 5.2 lakh hectares for pulses and oilseeds, respectively in the ongoing Rabi season (till mid-January 2021) in comparison to last year. A mission driven approach for both the crop categories will be desirable while planning to make Indian agriculture atma-nirbhar (self-reliant).

2. In the Union Budget of past few years, the Finance Minister has been emphasizing on promotion of natural as well as organic farming. Post pandemic, the demand for safe and nutritious food items is expected to rise, as a growing number of health conscious population would want to boost their immune systems. In such a scenario, a special mission/scheme could be launched to fund/incentivize States going for initiatives in an agro-ecological mode. Incentives may also be announced for crop diversification in such farming systems, where they are ecologically unsustainable. Diversification to resilient and nutritious crops like sorghum and millets and pulses should be supported with incentives during the transition; a robust value chain supported by a changing consumer behaviour. The UN Food Systems Summit is being held later this year and India should seize the opportunity to establish its leadership in promoting such ecologically sustainable initiatives in a large scale. This will also help in achieving targets under the Paris Agreement.

3. Under the agriculture infrastructure funds under Atma-Nirbhar Bharat initiative, incentives have been announced for farmers, FPOs, private sector, etc. to invest in storage and agri-processing facilities. With the amendment of Essential Commodities Act, this activity should speed up to benefit farmers by way of better realization of income as well as boosting agricultural exports. The Union Budget may reiterate this resolve by earmarking funds for the purpose. Given the shortage of storage infrastructures, Government may aggressively push setting up of warehousing facilities, cold storages, primary pack-houses, refer vans, etc. by involving the private sector. Tax incentives may be given to the entrepreneurs who would be willing to set up such units. Provision of tax concessions for investments in agricultural infrastructure should also be considered. With an ever increasing horticultural harvest, agri-processing and related logistics would prove to be worth investing.

4. Agri-tech start-ups and innovation hubs have already made their presence felt in certain parts of the country. However, their number is limited. More number of incubation centers could be set up to promote budding entrepreneurs who will play a meaningful role in agriculture value chain. To make visible impact of such enterprising entities, Government may create a separate fund to promote innovations in the digital agriculture space.

5. There is a need for reforms in the fertilizer sector to ensure balanced utilization of nutrients. Excessive use of urea in comparison to P & K fertilizers is mainly because of its low pricing. Benefits of initiatives like neem coating of urea have not been widely seen because of this reason. However, policy corrections seem practically impossible in the present state of farmers’ unrest. Government may however scale up efforts in its direct benefit transfer (DBT) in fertilizer sector that will ensure efficiency gains; prevent leakages; and provide much desired liquidity to the fertilizer manufacturers and suppliers. The soil health card scheme can also get better results if ‘customized’ fertilizers are freely available through a facilitating policy regime. Good soil health is the foundation for sustainable agriculture and Government must not lose sight of this objective.

6. Investments in agricultural research and innovation ecosystem has often been suggested to reap dividends. However, the present level of investment at 0.35 % of agriculture GDP (in 2018-19) is much below the desired levels (China spends 0.8%). A recent report on the investments by CGIAR (world’s largest global agricultural research network) found a benefit-cost ratio of 10 to 1 over the past five decades. India’s story in agricultural research and the benefits accrued to the farming ecosystem for the same period is equally a successful one. However, challenges such as climate change impacts on agriculture sector; nutrition security; resource use efficiency; and rising demand of high value agricultural products for a growing population with diet/food diversity, etc. calls for enhanced outlay for agriculture research, innovation, education and extension ecosystem in India.

7. The recent reforms in internal agricultural trade, are expected to correct historical inefficiencies in the agricultural marketing system. The new Act provides choices to the farmers to sell their marketable surplus in the APMC yards (mandis) or the trade area outside the mandis. The Government has clarified that the existing APMC-mandi system will continue along with the MSP mechanism.

It is a known fact that many of the APMC mandis in many States do not have sufficient and adequate infrastructure. To create confidence and firm belief amongst farmers that the mandi system will continue, union government may earmark special funds for improvement of such mandis with a matching contribution from the respective state governments. This will allay fears of the agitating and ill-informed farmers on the continuance of the mandi system along with the new trade area. Similarly, intention of the procurement operations may also be emphatically announced to dispel apprehensions of a section of the farming communities.

8. With the current uncertain situation on the farm legislations, there may not be further appetite for the missing piece of reforms around land leasing. Legalizing land leasing is expected to correct much of structural inadequacies in agricultural sector. Many of the labourers during the reverse-migration in the lockdown period have not come back to their workplaces. Many of them being small and marginal holders and landless, they will also benefit from a formalized land lease market. Land revenue being a State subject, Centre may consider incentivizing the States adopting such measures. With the existing political economy, this piece of reform may not be an immediate reality. Any surprise in the Budget will however get deserving accolades for the Finance Minister.

9. Creation of rural infrastructure has always benefitted the farm sector. Announcements to reinvigorate the rural economy is expected to have positive ripple effect on the agriculture sector. This will also boost rural consumption. Keeping the outlay under NREGA at the same level as last year (one lakh crore rupees) would be desirable for wage employment and creation of rural assets.

10. A crumbling agricultural extension system in many States too require revitalization. The forthcoming Budget should recognize the elephant in the room and make the much deserving allocations to correct these inadequacies. Adoption of digital technologies to transfer knowledge and information should be a top priority. The impact of COVID19 pandemic is still felt on the Indian economy. However, the farm sector is the only one that has functioned with some semblance of normalcy even during the lockdown period and beyond. This is evident from a positive growth rate of 3.4% in the first two quarters of this fiscal, while the other sectors showed negative growth. The positive trend needs to be sustained and thus, the budget announcements for agriculture sector this year hold much significance.

This is also practically the last year for the ambitious goal of doubling farm income by 2022. The initiative may not have achieved the targets, but it has definitely made a paradigm shift in the agriculture policy space, as the focus has shifted to farm profitability from the earlier productivity enhancement scenario. The momentum must continue with focus on the agriculture sector with priorities suggested above.