Will Budget help in real agriculture growth?

24 Feb 2021

Opinion: Ajaya K Sahu and Bornali Bhandari

The allocations show that the focus is more on income support than improving crop and livestock yields

That agricultural sector is critical for the overall socio-economic development of the country needs no re-stating. On average the agriculture and allied sector accounted for 20 per cent of GDP between 2012-13 and 2019-20 and is estimated to be 27 per cent in 2020-21. The Ministry of Statistics and Programme Implementation in its First Advance Estimates has estimated that the sector will register 3.4 per cent growth in 2020-21. This is close to the average medium-run growth of 3.5 per cent between 2012-13 and 2019-20.

Agriculture is characterised by low labour productivity employing 45 per cent of the workforce (MoSPI; 2018-19). India’s farmers are overly dependent on the South-West monsoon as only 49 per cent of the gross cropped area is irrigated thereby creating huge uncertainties. Further both yield and percentage of irrigated gross cropped area vary widely across States (see chart). The two are strongly correlated.

Investment in agriculture has stagnated over the last five years. Gross capital formation to output ratio in the sector declined from the average of 13 per cent during 2011-12 to 2014-15 to 10.5 per cent during 2015-16 to 2019-20 (MoSPI February 21). It is not surprising that while crop yields in India have gone up over time the country continues to lag in international comparisons (Lok Sabha Question No. 82 November 2016). According to the NITI Aayog Doubling Farmers’ Income Report even livestock productivity is low which forms a significant share of farmers’ income.

In Union Budget 2021-22 on average the total combined expenditures of the Ministry of Agriculture & Farmers’ Welfare and Ministry of Fisheries Animal Husbandry & Dairying formed 5 per cent of the total Central expenditure. The 2021-22 Budget Estimate (BE) has declined compared to 2020-21 BE by (-)7.5 per cent.

Let’s examine the key allocations in the Budget as a percentage of total expenditure of the two Ministries put together under different heads:

Improving crop and livestock productivity: Green Revolution (9.9 per cent) to improve yield and productivity in the sector.

Pradhan Mantri Kisan Sichai Yojana (2.9 per cent): The impact of this scheme is doubtful due to the under-utilisation of funds in 2020-21 and its ambiguous impact on increasing irrigation intensity.

The corpus fund for Micro Irrigation Funder under NABARD has increased from ₹5000 crore to ₹10000 crore

Improving agricultural support activities: Interest subsidy to short-term credit to farmers (14.3 per cent); and Pradhan Mantri Fasal Bima Yojana (11.8 per cent).

The reduced allocations across schemes makes it doubtful whether farmers will get MSPs.

Market intervention Scheme and Price Support Scheme (1.1 per cent): It was underspent in 2020-21 and allocation under this has been reduced from ₹0.02 trillion in 2020-21 (BE) to ₹0.015 trillion in 2021-22 (BE).

A related point is that Food Corporation of India (FCI) under the National Food Security Act procures cereals mostly rice and wheat and thus helps farmers get MSPs for their produce. Allocation under this has increased from ₹0.8 trillion in 2020-21 (BE) to ₹2 trillion in 2021-22 (BE). However if the financial support of ₹1.4 trillion extended through loans from National Small Savings Fund to FCI in 2020-21 (BE) is added (it was brought under the Budget in 2021-22) there was a decline in allocation between the two periods.

Agriculture Infrastructure Fund (0.7 per cent): This is a new scheme introduced last year designed to provide medium-long term debt financing facility to a variety of stakeholders .

Income support: The allocation for PM-KISAN (47.8 per cent) is ₹0.7 trillion in 2021-22 (BE) ₹0.1 trillion less than 2020-21 (BE). The scheme is not reaching all farmer households and is not necessarily pro-poor. Consequently the scheme is underachieving its target of 14 crore farmers.

Capital expenditure in this sector forms only 1.5 per cent of total expenditure but Budget allocation in 2021-22 has gone up by 147.4 per cent. And 97.2 per cent of the capital expenditure in this sector is for food storage and warehousing and investments in agricultural financial institutions. Animal husbandry is the only sub-item under this sector which has experienced a decline in allocation.

In sum the focus of the Budget is towards income support and improving agricultural support activities. However early evidence indicates that PM-KISAN is mis-targeting and allocations for MSP supporting schemes are being reduced.

Also barring micro-irrigation schemes limited attention is being paid to improving actual crop or livestock yields. The systemic stagnancy in the core of the agricultural sector may hold back future growth.

Ajaya Sahu is a Senior Research Analyst and Bornali Bhandari is a Senior Fellow at NCAER. Views are personal

Published in: Business Line, February 24, 2021