Focus on farming

Many good ideas for agricultural reform should be in the Budget

Shoring up the rural economy that has been crippled because of two successive droughts is clearly a major focus of the upcoming Budget. This is imperative also to revive rural demand for goods and services to stimulate overall economic growth. But how Finance Minister Arun Jaitley will seek to achieve this feat is hard to predict, though what he should try to do is fairly apparent. Considering that the prime need is to enhance farmers' earnings to alleviate their distress, the Budget needs to come out with measures collectively aimed at bolstering farm productivity, reducing costs, facilitating easier access to institutional finance, reforming agricultural marketing - and, most significantly, generating more employment, particularly in the non-farm rural sector. Besides, due attention needs to be paid to critical areas that range from natural resources like land and water to policies governing agricultural pricing and domestic as well as external trade of farm goods. Moreover, reform of farm subsidies is urgently needed; some non-productive subsidies should be converted into productive investments. Also important is to promote farm mechanisation to improve precision of farm operations for more efficient use of inputs. In view of the increased frequency of climate change-driven extreme weather events, measures are needed to mitigate the vulnerability of agriculture to these shocks by enabling it to adapt to altered weather patterns and enhancing drought resilience through expansion of irrigation, particularly micro-irrigation. Greater investment is needed to expand rural infrastructure.

Some useful inputs and ideas have been generated during the finance minister's pre-Budget meetings with farm sector representatives and in the recent reports of expert groups for the Reserve Bank of India (RBI) and the NITI Aayog. The report of the RBI's committee on financial inclusion has pointed out that farm production is not commensurate with the credit flow - a sizeable Rs 8.4 lakh crore in 2014-15. Nor does this credit reach where it is needed the most. It also drew attention to the fact that much of the institutional credit is disbursed as short-term crop loans, thus neglecting the need for long-term credit for investment in productivity-boosting measures. This issue needs to be suitably addressed in the Budget.

The NITI Aayog's task force on agriculture, meanwhile, made some well thought-out suggestions to raise agricultural productivity and make farming remunerative. These include helping farmers upgrade their seeds more frequently and decanalising urea imports with the subsidy going directly to farmers' bank accounts. More importantly, it has suggested an entirely novel method of ensuring returns to growers through a "price deficiency payment mechanism". This system involves fixing floor prices for different crops based on their average market prices in the previous three years, and compensating the growers for any shortfall in realising these rates. The present procurement-based system of providing minimum support prices has remained confined to a handful of crops in a few states; the new system seems capable of covering all major crops across the country. Thus, the farm sector agenda before the finance minister is truly extensive. The Budget must make a start on these far-reaching reforms.