Budget 2021-22: Blueprint for Sustainable Development of Agriculture

The Union Budget 2021-22 has truly been a “Budget like never before”, with its thrust on reforms and investment in infrastructure across sectors. The roadmap for a $5 trillion economy has indeed been set by the Budget.

With about 42 percent of India’s workforce engaged in agriculture and allied activities, the importance of the sector in increasing  income, employment and achieving inclusive growth, is well-documented. Therefore,  it is imperative to  accelerate  investment in the sector to enable sustainable development. Capital formation in agriculture is of critical importance for the sustainability of agricultural growth.  Hence, it is a matter of concern that the percentage share of Gross Capital Formation (GCF) in agriculture and allied sector Gross Value Added (GVA) at 16.4 percent (2018-19), is too meagre to address the issue of sustainability of Indian agriculture. Therefore, capital formation through rural infrastructure development and term loans to the agriculture sector assumes significant importance.

Investment in rural infrastructure is a pre-condition to enable the acceleration of agricultural growth, creation of new economic opportunities, and generation of employment. It is, therefore, worth appreciating that the Union Budget 2021-22 has enhanced the allocation under Rural Infrastructure Development Fund (RIDF), administered by NABARD, by a whopping 33.3 percent to `40,000 crore over the allocation in the previous year’s Budget. During its 26-year  journey, RIDF has evolved into a dependable and timely source of funding for rural infrastructure projects for state governments. Therefore, the present hike in the allocation under RIDF promises to accelerate investment in rural infrastructure, resulting in the much-needed capital formation in agriculture, leading to sustainable agricultural growth, while raising crop productivity, generating employment and doubling farmers’ income. As documented by NABARD,  irrigation projects financed under RIDF have resulted in more than 30 per cent increase in irrigated area, leading to the creation of 341 lakh ha of irrigation potential, `57,427 crore additional value of production, more than 50 per cent increase in cropping intensity, and generation of 1,401 crore non-recurring employment  (as on 31 March 2020).

Another important move in the Budget has been the availability of Agriculture Infrastructure Fund (AIF) to APMCs for augmenting their infrastructure facilities. Also, 1,000 more APMC  mandis will be integrated with e-NAM. Presently, 1.68 crore farmers are registered and `1.14 lakh crore of trade value has been carried out through the existing 1,000 e-NAMs, which have displayed transparency and competitiveness into the agricultural market. These announcements should assure farmers that APMCs are here to stay, and would indeed grow stronger, to face competition from private mandis, leading to transparent price discovery, benefitting the farmers, especially the small and marginal holders. The AIF, with a corpus of `1 lakh crore was created by GoI under  Atma Nirbhar Bharat Abhiyan, for the development of farm-gates and aggregation points, and post-harvest management infrastructure. The scheme involves credit support by banks and financial institutions to primary agricultural credit societies (PACS), marketing cooperative societies, farmer producer organisations (FPOs),  self -help groups (SHGs), farmers, joint liability groups (JLG), multipurpose cooperative societies, agri-entrepreneurs, startups and central/state agency or local body sponsored public-private partnership projects. Interest subvention and credit guarantee for loans up to `2 crore is also available to eligible borrowers. The allocation under the scheme in the Budget has been increased significantly from `208 crore (RE 2020-21) to `900 crore, which augurs well for agriculture marketing reforms.

India is a water-stressed country, and 78 percent share of water is consumed by the agriculture sector. While water-use efficiency under conventional irrigation ranges between 30 per cent and 50 per cent, the same is around 80-95 percent in case of micro irrigation. The total potential of micro irrigation in India is estimated at around 69.5 million hectares (Mha). But, the coverage of micro irrigation is only 10.25 Mha  (2018). It is therefore, commendable that the Budget has doubled the corpus of Micro Irrigation Fund (MIF) to `10,000 crore. The MIF, created under NABARD, facilitates state governments in mobilizing additional resources for expanding the coverage of cultivated land under micro irrigation and incentivizing its adoption beyond the provisions of the Pradhan Mantri Krishi Sinchai Yojana – Per Drop More Crop (PMKSY-PDMC). As on 31 October 2020, the cumulative loans sanctioned and released under MIF stood at `3,806 crore and `1,095 crore, respectively, to the state governments of Andhra Pradesh, Gujarat, Haryana, Tamil Nadu and West Bengal, for facilitating them to expand micro irrigation to an area of 12.6 lakh ha. involving 10.06 lakh farmers, of which about 78 percent  belong to small and marginal holder category. The enhancement in the budgetary allocation would extend the benefits under the scheme to other states and larger number of farmers.

Enlargement in the scope of the  ‘Operation Greens Scheme’, from tomatoes, onions, and potatoes (TOP) to include 22 perishable products, is a landmark announcement in the Budget. The scheme  promoted by the Ministry of Food Processing Industries, aims to boost value addition in agriculture and allied products and their exports, and provide support to promote FPOs, agri-logistics, processing facilities and professional management. The integrated development of horticulture value chains would provide support to farmers when prices of agri-produce is low. Therefore, the expansion of the scheme promises to provide income security to a sizable number of farmers.

India is the second largest fish producing country in the world, and fisheries is the fastest-growing (12 percent real GVA growth in 2018-19) sub-sector of agriculture and allied sector in the country. Therefore, the       announcement in the Budget on the  development of modern fishing harbours, fish landing centres and a multipurpose seaweed park,  promises to develop the sector in a well-calibrated and sustainable  manner, to accelerate domestic and foreign trade, and in the process significantly improve the income and livelihoods of fish farmers

Adequate and timely availability of bank credit, at affordable rates of interest is essential to improve agricultural productivity and sustainability. Therefore,  the enhancement in the target for agricultural credit to `16.5 lakh crore in the Budget from `15 lakh crore in FY21, is welcome. It is also important to note that the  focus will be on ensuring increased credit flows to high-growth and high-value activities, viz. animal husbandry, dairy, and fisheries. A thrust on credit by banks to these sub-sectors along with horticulture, farm mechanisation, warehouses and cold chains, to farmers, FPOs and agri-entrepreneurs,  is imperative to increase the share of agriculture term loans in total agriculture credit disbursed, from the current 40 percent to 60 percent, to accelerate  capital formation in agriculture.

The Budget provides the much-needed big push  for investment and infrastructure development in the agriculture sector, to enhance productivity, value of output, income and employment, towards achieving a sustainable 5 percent annual growth of agri-GVA, which is vital to support the achievement of a $5 trillion economy within a reasonable time-frame.

Stimulating Agricultural Exports for Doubling Farmers’ Income

 

Achievement of a $5 trillion economy by India could be pushed by a couple of years from the original deadline of 2024-25, due to a pandemic-induced recession during 2020-21.  Only a V-shaped recovery during 2021-22, and a sustainable growth of 9 percent per annum over the next five years can turbocharge the economy to touch the $5 trillion mark.  The agriculture sector which contributes 14.6 percent to the economy, needs to support this objective by focusing on private investment  and exports, while targeting an annual agri-GVA growth of 5 percent. A focus on reforms in agri-marketing and agri-exports, along with the promotion of hi-tech, digital and precision agriculture, would be an appropriate recipe for transforming the agriculture sector, while doubling farmers’ income, within a reasonable time-frame.

India ranks among the top ten exporters of agricultural products in the world.  According to WTO’s World Trade Statistical Review 2020, the country’s share in global agricultural exports increased from 1.1 percent in the year 2000 to 2.2 percent in 2017, valued at $39 billion, but fell to 2.1 percent in 2019, valued at $37 billion. While the US witnessed a decline in its share of global agricultural exports from 13 percent in 2000 to 9.3 percent ($165 billion) in 2019, Brazil’s share increased from 2.8 percent to 5.0 percent ($89 billion), and that of China increased from 3 percent to 4.6 percent ($82 billion). In order to catch-up with Brazil and China, India needs to bring about structural reforms in the agriculture sector, including a stable trade policy regime.

India’s agricultural exports experienced huge fluctuations during the ten-year period 2010-11 to 2019-20. The ten-year CAGR was 1.7 percent. During the first five-year period 2010-11 to 2014-15, agri-exports increased significantly from $24.4 billion (2010-11) to an all-time high of $43.1 billion (2013-14), before declining to $39.4 billion (2014-15) at a CAGR of 11.5 percent. The second five-year period (2015-16 to 2019-20) witnessed a slump in agri-exports to $33 billion (2015-16), before a steady increase to $38.8 billion (2018-19), followed by a slide to $37 billion (2019-20) (see Figure below). The CAGR during this period slowed down considerably to 3.7 percent, from the previous period.

According to APEDA, during the period April-October 2020, India’s exports of top three agri-commodities, viz. Basmati rice, non-Basmati rice and buffalo meat, in terms of value (USD) grew by 9 percent, 104.4 percent and 10.5 percent, respectively, compared to the corresponding period of the previous year. The sharp rise in exports of non-Basmati rice can be attributed to lower prices compared to that of major rice exporters, Thailand and Vietnam and also because these countries stopped exports due to lockdown. Taking advantage of this, Indian non-Basmati rice exporters have been able to meet the increasing import demands from China, Bangladesh and African countries.

However, what is worrisome is the absence of a stable trade policy regime in India. In order to control prices in the domestic market, the government has at different times resorted to banning of exports of major agri-commodities, viz. rice, wheat, sugar and onion. Imposition of minimum export price (MEP) is another tool often used to tame inflation.  These measures create uncertainty among importing countries, and deprive farmers of higher returns from their produce.  

The Agriculture Export Policy (AEP), 2018 of GoI, aims at achieving an export target of $60 billion by 2022 and $100 billion within a few years, thereafter. This is indeed a humongous task, even under normal circumstances, and more so in the aftermath of the Covid-19 pandemic.  Therefore, there needs to be a realistic resetting of the timeline to achieve the target. Achieving the target would involve a paradigm shift from a “business-as-usual” approach to a well-calibrated, comprehensive, strategic  and result-oriented agri-export policy and action plan. This would lead to technology-driven agricultural productivity gains across sub-sectors, resulting in  higher output and marketable surplus for domestic and foreign markets.

The following strategies are suggested by this author for India to achieve the target of $100 billion of agri-exports within a reasonable time-frame, while also resulting in doubling farmers’ income:

·       Majority of India’s agri-exports are low value, raw or semi-processed products. Therefore,  agri-export strategy should include integration of value-added agri-produce with global value chains (GVC), by adopting the best agricultural practices involving productivity gains and cost competitiveness. It’s also imperative for India to reconsider joining RCEP at an opportune time, and also to enter into FTAs with the EU, the US and the UK.

·       In order to boost exports of dairy products and make the dairy sector globally competitive, GoI needs to consider development of Dairy Export Zones (DEZs) in collaboration with state governments (see “A White Revolution for Exports” by this author in FE December 07, 2019). This could immensely benefit small dairy farmers, organised as farmer producer organisations (FPOs)/ farmer producer companies (FPCs)/ cooperatives, for supplying milk, and also for contract production of dairy products on behalf of  major dairy producing companies, leading to cost efficiency and higher export revenue to the dairy companies as well as significantly higher income to farmers.

·       Linking of FPOs through contract farming arrangements with export-oriented food processing units of food parks created under Pradhan Mantri Kisan Sampada Yojana, for producing processed cereals, fruits, vegetables, fish and marine products, would boost exports of processed food and raise  income of small and marginal landholders and small fish farmers.  

·       With global trade in organic products estimated to be around $90 billion, there is a huge opportunity for exports of value-added organic products from India, which exported $689 million worth of organic food in 2019-20. Madhya Pradesh, Rajasthan, Maharashtra, the North Eastern Region (NER), Uttarakhand and Goa are major producers of  organic products in the country. It’s desirable to create Organic Product Export Zones (OPEZs) in  these states and NER, with common infrastructure for processing, standardisation, storage, logistics, and connectivity to ports and airports. Branding of products and registration as GI, could further facilitate exports of value-added organic products. FPOs of organic farmers could be formed and linked to the OPEZs, to ensure higher income for farmers.

·       Economic diplomacy and promotion of Brand India can play an effective role in increasing agri-exports.

·       The AEP has recommended the establishment of Agriculture Export Zones (AEZs), to facilitate value addition of agri-commodities for increasing exports in a WTO compatible manner. In order to ensure higher income for farmers, FPOs need to be linked to AEZs to supply SPS-compliant agri-products. 

·       Higher investments in Research and Development (R&D) and technology, viz. Internet of Things (IoT), artificial intelligence (AI) and blockchain, for improving agricultural productivity, resource-use efficiency and export competitiveness.

·       Linking farmers/ FPOs to the export market and skilling of surplus farmers for their absorption in the agri-export value chains, could be an important strategy to sustainably raise farmers’ income.

Concerted efforts by GoI, state governments, Indian embassies, APEDA, EXIM Bank, NABARD, and all other stakeholders in the agri-export value chains, are needed to address a whole range of issues pertaining to promotion of agri-exports,  which could potentially propel India into the top bracket of agricultural exporters, and in the process facilitate doubling of farmers’ income within a reasonable time-frame.

CAGR:  2010-11 to 2019-20 = 1.7%; 2010-11 to 2014-15 = 11.5%; 2015-16 to 2019-20 = 3.7%

Source: Author’s calculations based on data accessed from Economic Survey, Government of India (various issues) and World Trade Statistical Review 2020, WTO

 

Farm Acts: Addressing the VUCA World of Farmers

Debesh Roy and Bijetri Roy

(Debesh Roy is a consultant economist; Bijetri Roy is instructional designer at EBC Learning)

The enactment of Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (FPTC Act, 2020), Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 (FAPAFS Act, 2020) and Essential Commodities (Amendment) Act, 2020 (ECA, 2020), signifies the ushering in of the long-awaited comprehensive  agri-marketing reforms. However, the  brouhaha over the Acts, brings to the forefront the stiff resistance to agri-reforms by certain sections of the farming community, traders and politicians. In a sector which provides livelihood to 44% of India’s workforce, majority of whom are small and marginal landholders earning meagre income under the existing APMC system,  income security of farmers needs to be of prime concern to policy makers. Indeed, GoI’s vision of “doubling farmers’ income” signified a paradigm shift in agriculture policy from ensuring food security to income security of farmers, by maximising their gains through post-production activities. The Acts promise to ensure income security of farmers on a sustainable basis.

Farmers in India, especially the small and marginal farm holders, covering 86% of landholdings,  live in a VUCA (volatility, uncertainty, complexity and ambiguity) world of volatile prices, uncertain income, complex institutional mechanisms and restrictive laws, and policy ambiguities.  The Acts, together with the setting up of Agriculture Infrastructure Fund (AIF) for creation of agri-infrastructure near farm gate and aggregation points, and development of efficient agri-value-chains, are expected to create the right ecosystem for enabling farmers to come out of the VUCA world.  

Price volatility is common among perishable commodities like tomato, onion, potato and other horticulture crops. Maharashtra, the largest producer of onions in the country, witnessed 64% rise in wholesale prices of onion in August 2020, over the previous month (see chart below). Madhya Pradesh and Karnataka witnessed price rise of 21% and 27%, respectively. Retail prices too increased sharply, which prompted GoI to ban the export of onions - ironically, days before the passing of the ECA Bill, 2020 in the Parliament.

Under the ECA Act, 2020, the government’s power to impose stockholding limits in identified commodities and foodstuffs, has been done away with, except under extraordinary conditions such as war, famines, extraordinary price rise  and natural calamities of grave nature. However, a 100% rise in retail price of horticultural produce and 50% rise in price of non-perishable foodstuffs, would trigger restrictions in stockholding by the government. Considering the fact that almost every year the country experiences weather-induced sharp rise in price of onions, the government could in such an eventuality, impose ban on exports and also restrict stockholding of onions. This would hurt farmers. As the ECA, 2020 exempts the installed capacity of value chain participants, private investments in warehouses and cold storage would be encouraged. Therefore, with the creation of adequate storage infrastructure and processing facilities, the price of onions and other horticulture produce could be stabilised, over a reasonable period of time.

The FPTC Act, 2020 and FAPAFS Act, 2020, aim at transforming the agri-market ecosystem by addressing price and income uncertainties of farmers, as well as complexities and ambiguities prevailing in the existing APMC system, that have resulted in the exploitation of hapless farmers by commission agents (arhatyas). The arguments by the opponents of the Acts revolve around the apprehension about abolition of minimum support price (MSP), dismantling of APMC system, and profiteering and exploitation of farmers by corporate entities entering into contract farming agreements with farmers. The arguments and apprehensions lack conviction. The APMC Acts were meant to protect the farmers, but over time, the mandis were rendered restrictive and monopolistic, ending up severely harming them. Transparent price discovery through auctions was replaced by collusion and price fixing. Further, it has been estimated by NSSO that only 6% of all farmers benefited from public procurement at MSP.

GoI announces Minimum Support Price (MSP) in respect of 23 commodities. However, only few states  have strong procurement systems like Punjab, Haryana and M.P., and FCI procures major quantities of wheat from these states (82.5% during Rabi Marketing Year 2020-21). Farmers in these states are able to sell wheat and paddy at MSPs. However, the same is not true in respect of other states and other commodities like pulses and oilseeds, and farmers have been found to receive prices below MSP.  The table below shows that during October 2019-March 2020, the prices of arhar in the APMC markets of major producing states, viz. Maharashtra, Madhya Pradesh, Karnataka and Gujarat, as also the all-India average prices remained below MSP.  In M.P. which is the second largest producer of arhar, the prices ranged between 54.1% of MSP in December 2019 and 76.8% in February 2020. As explained by noted agricultural economist Dr. Ashok Gulati, asking for legal status for MSP is untenable as the Centre does not have the wherewithal to buy all the 23 commodities, and private players fearing legal action would shun buying. Interestingly, the Commission for Agricultural Costs and Prices (CACP) in its Kharif Policy 2018-19 had suggested a legislation conferring on farmers ‘the Right to Sell at MSP.’ This needs to be debated.

The FPTC Act, 2020 would enable the creation of an ecosystem where farmers and traders would enjoy the freedom of choice relating to sale and purchase of farmers’ produce which facilitates remunerative prices through competitive alternative trading channels, involving barrier-free inter-state and intra-state trade. Clearly, APMC mandis need to compete with alternative marketing channels to enable transparent price discovery. Further, in order to develop an efficient nation-wide  agri-marketing system, e-NAMs, too need to be scaled up and made efficient, and all markets, as well as accredited warehouses could be linked to e-NAMs. Commodity futures trading of major agri-commodities by farmer producer organisations (FPOs) through NCDEX, needs to be encouraged to ensure efficient price discovery and risk mitigation. As stated by the Committee on Doubling Farmers’ Income, the vision of a full-fledged national agricultural market is where all types of markets have inter-operability in communication, standards, and systems, operating under a common regulatory framework.

The FAPAFS Act, 2020 provides for a national framework on farming agreements that protects and empowers farmers to engage with agri-business firms, processors, wholesalers, exporters or large retailers for farm services and sale of future farming produce at a mutually agreed remunerative price framework in a fair and transparent manner. The fear of exploitation of farmers by corporate entities can be addressed if FPOs, instead of individual farmers, enter into contract farming agreements. Already, NABARD has been entrusted with the task of supporting formation of 10,000 FPOs, in addition to the already existing about 4,000 FPOs, which need to be strengthened and professionalised.

The new Acts are expected to create an ecosystem which promises to enable farmers to come out of the VUCA world. What is further needed is the continuance of income support programme like PM-KISAN, with possibly a higher allocation covering the cost of fertiliser subsidies, along with top-up by states, similar to YSR-Rythu Bharosa-PM-KISAN of Andhra Pradesh. Further, the unfinished agenda for agri-reforms would include pursuing tenancy reforms, significantly raising R&D spending on modernisation of agriculture through artificial intelligence and blockchain technology for increasing crop productivity and resource-use efficiency, strengthening of agri-tech start-up ecosystem, and skilling of farmers who could be taken out of farming to be gainfully employed along efficient agri-value chains. Finally, inclusion of agri-marketing in the Concurrent List of the Constitution of India, needs to be thoroughly debated nationally by all stakeholders and prioritised by the government.

Source: Prepared by authors based on data accessed from agmarknet.gov.in

Arhar – Wholesale Market Price as % of MSP
	Oct-19	Nov-19	Dec-19	Jan-20	Feb-20	Mar-20
Maharashtra	89.4	91.5	85.4	81.8	81.7	83.9
Madhya Pradesh	66.6	64.7	54.1	64.5	76.8	75.5
Karnataka	90.4	93.7	90.2	85.8	84.3	83.0
Gujarat	84.6	75.1	83.4	85.6	97.5	87.8
All-India average	90.7	97.5	94.4	89.7	88.3	91.3

Source: Prepared by authors based on data accessed from agmarknet.gov.in

Source: Prepared by authors based on data accessed from agmarknet.gov.in