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Monday, May 16, 2022

What Indian agriculture needs from the budget

🔴 Slashing the subsidy bill on food and fertilisers, investment in research, efficiency in government expenditure can increase farmers’ incomes

Written by Ashok Gulati |
Updated: January 31, 2022 9:21:04 am
ICAR needs not only a big infusion of funds but also an overhaul to collaborate with the private sector and FPOs to make its research outcomes marketable. (File)

The Union Budget for 2022-23 to be presented by the finance minister is likely to talk much about macro-economic recovery, be it V-shaped or K-shaped. She may announce some measures to boost the MSME sector, greater investments in infrastructure, and so on. However, common people are more concerned with surging inflationary pressures, inflicting an “inflation tax” on their savings. Containing the fiscal deficit has always been a challenge. And it would be more so this year when economic recovery is still fragile. But what one hopes is that the FM will keep the budget accounts transparent.

Transparency in budgetary accounts is critical for the credibility of the budget. In this context, the FM deserves compliments for her last year’s Union budget, when revised numbers for food and fertiliser subsidies were put up way above the budgeted numbers, clearing almost all arrears of the Food Corporation of India (FCI) and the fertiliser industry. Think of revising the food subsidy budget estimate of Rs 1.15 lakh crore to Rs 4.22 lakh crore, and the fertiliser subsidy estimate of Rs 71,309 crore to about Rs 1.34 lakh crore. That was a bold move towards transparency. Even this year, the revised estimates of food and fertiliser subsidies are likely to be significantly higher than the budgeted estimates of Rs 2.43 lakh crore and Rs 79,530 crore respectively, and one hopes that the FM will keep them transparent and clear all the bills in the revised estimates.

Looking at the budget from the food and agriculture angle, I see the subsidies on food, fertilisers, and payments under the PM-Kisan Samman Nidhi will dominate, and easily cross Rs 4 lakh crore, and may even go towards Rs 5 lakh crore in total. As a percentage of net tax revenue of the Union government (after deducting the share of states), this subsidy amount may turn out to be around 30 per cent. This share of subsidies, which are basically doles, is multiple times the government’s expenditure on agri-R&D through its Indian Council of Agricultural Research (ICAR), which hovers around Rs 8,000 crore. Interestingly, our research at ICRIER shows that investment in agri-R&D brings five to 10 times higher returns in terms of agri-GDP or even poverty alleviation than the same amount spent through, say, fertiliser subsidies (or even power subsidies by states).

The upshot of this is that if the Union government wants the biggest bang for its buck, the right approach is to double or even triple the amount on agri-R&D and extension, especially in the emerging areas of high-value agriculture (horticulture, medicinal plants, livestock, fishery, etc). This is not just to raise their productivity but also build efficient value chains to supply these to lucrative markets, so that farmers’ incomes can be significantly augmented. That’s where the role of the private sector becomes important. ICAR needs not only a big infusion of funds but also an overhaul to collaborate with the private sector and FPOs to make its research outcomes marketable.

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On the food subsidy front, which is ballooning, we know it is the result of the high economic cost of rice and wheat to the Food Corporation of India (FCI), the low issue prices at which it has to supply grains for the public distribution system (PDS), and the large population (67 per cent) to be covered under the National Food Security Act (NFSA). The economic cost of wheat and rice is almost 40 per cent higher than their MSP. Take, for example, rice, whose economic cost hovers around Rs 40/kg, but it has to be given at Rs 3/kg through PDS and almost free under the PM Garib Kalyan Anna Yojana. Given our weak governance of the PDS, ground reports suggest there is not only massive leakage of rice in the open market but it also goes towards ramping up our rice exports, which may touch 20 million tonnes this year, the highest ever in history. It would have been a matter of pride if these exports were on its competitive strength. But the reality is that the export unit value is much below the MSP of rice. And when India exports, say, 20 mmt of rice in a global market that hovers around 45-46 mmt, it brings down the global prices of rice. This means that India has to export more quantities of rice to get the same amount of dollars, a perfect case for imposing an optimal export tax on rice. Also, this amount of rice which is being produced through heavy subsidies on power for irrigation and extremely low urea prices, means that we are exporting at least 40 to 50 billion cubic metres of water.

We surely need better policies on grain management and fertiliser subsidy. NITI Aayog has come up with a Multi-dimensional Poverty Index (MPI) putting Indian poverty at 25 per cent for the year 2015-16 based on NFHS data. The 2019-20 data set would give an even lower poverty ratio. Poverty based on the international definition of $1.9 per capita per day (PPP) is even lower (around 11 per cent) for 2017-18, as per the World Bank. The Economic Survey had earlier made a case for reducing the coverage of beneficiaries under NFSA from 67 per cent to 30 per cent, which makes ample sense for targeting the poor and bringing efficiency to the PDS. I would submit that beneficiaries also be given the option to receive the money in cash in their accounts, which could be equal to MSP plus, say, 20 percent, in lieu of physical grains. This would reduce leakages, and also save on the high economic costs of these grains. If the coverage of beneficiaries under NFSA cannot be reduced, at least those who are non-poor can be charged at half the price of the economic cost.

Similar moves are needed on the fertiliser subsidy front. Else, the budget documents remain a mere accounting exercise, without ensuring efficiency and inclusiveness in government expenditure. That’s not exciting.

The writer is Infosys Chair professor for Agriculture at ICRIER

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