Agriculture has high hopes from this Budget

Govt should revamp agricultural marketing to increase farmers' earnings and amend land-leasing laws

Finance Minister Arun Jaitley has met farm sector representatives for pre-Budget consultations at a time Indian agriculture is passing through a bad patch - especially because of two years of consecutive drought. Predictably, therefore, most participants pitched for more credit on soft terms, higher minimum support prices (MSP) for crops and the expansion of irrigation facilities to enhance Indian agriculture's resilience against drought. They also argued for augmenting the corpus of the price stabilisation fund and consistent export policies. The other notable suggestions included revamping agricultural marketing to increase farmers' earnings; higher spending on agricultural research; expansion of agricultural insurance at subsidised premiums; and amending land-leasing laws. The finance minister himself candidly conceded that the farm sector needed more investment to boost agricultural productivity by leveraging technology and efficient use of water.

Apart from these inputs, the finance minister also has at his disposal the reports of the NITI Aayog's task force on agriculture and the Reserve Bank of India (RBI) committee on financial inclusion. The RBI committee's report has categorically stated that agricultural production is not commensurate with the credit flow to it, which rose to a whopping Rs 8.4 lakh crore in 2014-15. A sizable part, obviously, doesn't reach where it is needed the most - due not just to leakages in the system but also other factors, like the ineligibility of tenant farmers for bank loans and the diversion of borrowed funds to non-farm purposes. A sizable part of the subsidised credit is cornered by asset-owning farmers; small and marginal land owners, as also tenant farmers, still rely on moneylenders.

Another significant point made by the RBI panel is that much of the subsidised credit is issued in the form of short-term crop loans to meet farmers' immediate cash requirements. The need for long-term credit for investment on productivity-boosting measures remains largely unmet. The panel favours replacement of interest subvention on agricultural loans with subsidy on universal crop insurance scheme to cover farmers' production and price risks. Certainly, the panel has correctly diagnosed the credit system's failings. However, caution is needed: none of the over a dozen farm insurance schemes tried out so far has proved successful.

The report of the NITI Aayog task force, on the other hand, focuses on improving farm productivity and making farming economically viable. Among its suggestions that need consideration during the Budget-making exercise include de-canalisation of urea and direct transfer of subsidy to farmers; and the substitution of the procurement-based system for providing minimum support prices with a wholly novel "price-deficiency payment" mechanism. This will involve fixing floor prices for different crops, based on their average market prices over the previous three years, and compensating growers if they don't realise those rates. Thus, on the whole, the finance minister has a fairly heavy agriculture sector agenda - apart from the need to step up funding of some of the ongoing programmes to create agriculture-supporting infrastructure.