Worth considering financial incentives for states to modernise agriculture marketing: Economic Survey 2024

“Improving the market infrastructure by incentivising states can be explored. This can be done by creating an index to rank states, allowing the participation of cooperatives, and enabling remunerative returns to investors according to the functioning of their APMCs (agricultural produce market committees) and other market institutions. Such a competitive framework can drive states to strive for improved agricultural marketing. It is also worth considering providing financial incentives for states to undertake necessary interventions to modernise agriculture marketing as recommended by the 15th Finance Commission,” said the Economic Survey tabled by Finance Minister Nirmala Sitharaman in Lok Sabha on Monday, a day ahead of the Union Budget 2024 presentation.

The Economic Survey 2023-24 observations are significant as the government’s top think tank NITI Aayog has revived the 15th Finance Commission’s idea of providing financial incentives to states to encourage them to implement agriculture reforms. The Indian Express reported that the NITI Aayog officials, in a presentation to the Prime Minister’s Office, mooted an idea of a new scheme with an outlay of Rs 50,000 crore to incentivise states to adopt agricultural reforms. (https://indianexpress.com/article/india/govt-considers-rs-50000-crore-scheme-to-incentivise-states-for-agricultural-reforms-9467601/)

The Finance Commission had recommended performance-based incentives for the implementation of agrarian reforms by the states. The agriculture sector’s performance is crucial for the economy’s growth, with an average growth rate of 4.18 per cent over the last five years, as stated in the Economic Survey.

“The growing significance of allied sectors such as animal husbandry, dairying, and fisheries in enhancing farmers’ income suggests that greater emphasis should be placed on tapping into the potential of these activities to boost farmers’ incomes,” it said.

“Smallholder farmers’ incomes cannot be increased by producing rice, wheat, or even millets, pulses and oilseeds. They need to move to high-value agriculture – fruits and vegetables, fisheries, poultry, dairy and buffalo meat. Once the incomes of smallholders increase, they will demand manufactured goods, spurring a manufacturing revolution. That is what happened in China between 1978 and 1984 when the real incomes of farmers doubled in just 6 years. India is well-placed to emulate this,” it added.

The Survey further stated that enhancing private sector investment in agriculture is vital to providing impetus to the sector. Investment in technology, production methods, marketing infrastructure, and reduction in post-harvest losses need to be scaled up. A greater focus on post-harvest infrastructure and the development of the food processing sector can reduce wastage/loss and increase the length of storage, ensuring better prices for the farmers. Productivity of the crop sector can also be enhanced through greater investment, including from the private sector,” it said.

The Survey said, “Promoting crop diversification towards oilseeds, pulses, and horticulture requires addressing critical issues such as investment in agri-infrastructure, credit accessibility and appropriate market institutions. MSP has incentivised crop diversification and there is evidence that MSP has a positive and statistically significant effect on retail prices of all crops, with a stronger effect for those crops where procurement is substantial, such as paddy and wheat.”

“Efforts must be made to encourage production patterns and practices in various geographies that are consistent with their agro-climatic characteristics and natural resources. Research and development and promotion of digital technologies in agriculture, as well as improving the quality of seeds, including promoting organic and natural farming, can play a significant role in the realisation of sustainable agriculture practices that efficiently improve farm income and influence farmer behaviour,” it added.