Farm insurance, credit access schemes expected in Budget 2017: Kakra of PwC

The PwC leader (Food and Agriculture), PwC was replying during a Business Standard live chat

In an effort to double the agriculture production by 2020, the government should introduce schemes for greater access to farm credit in Budget 2017, Ajay Kakra, leader (Food and Agriculture) PwC, said. 

Kakra also underlined that Union Finance Minister Arun Jaitley should also introduce policies for incentives towards irrigation and insurance of farm crops. He further highlighted the need for a digitised farming economy in the longer run. 

Kakra was answering questions on what announcements related to the agriculture sector are expected in Budget 2017 during a Business Standard live chat. Excerpts: 

In his New Year's eve speech, Prime Minister Narendra Modi talked about giving certain concessions and incentives to farmers. It is hoped that the government will follow that up with further concessions and incentives for the agriculture sector and the agro-input industry in the coming Budget. What can we expect?

One of the key focus areas of the honourable prime minister is to provide greater access to farm credit. In my view as well this can be a key area of focus to strengthen the farming sector. As far as the agriculture input sector is concerned, access to seed, agrochemical and fertiliser is an essential requirement for ensuring farm output. The Budget can look at strengthening the distribution network of agri-inputs to ensure availability at the time of sowing or beginning of the season. The rabi sowing has been more or less normal while the offtake of fertiliser has also not been dampened due to cash crunch at the time of demonetisation.

In the financial year, the overall agricultural output was expected to grow at 4 per cent. But with the government's demonetisation move that has likely caused some roadblocks, what kind of favourable policies can we expect to heal the agriculture sector?

Agricultural growth is fundamentally governed by the output of food grain and other crops which are showing no signs of decrease. The Rabi crop is also expected to be normal except a shortfall in rabi paddy. Therefore, the sector will see a growth over the last year. Demonetisation had only a one-time effect on the agricultural transactions but has not shown any sign of slow-down in food storage and distribution and even consumption. I believe the policies will look at strengthening the coverage of a greater number of farmers in the formal banking system and providing more credit in terms of crop loans, equipment purchase, technology adoption. Currently, only 52 per cent of the total farming community of 9.2 crore is covered under the financial net. The government should aim at increasing it by another 10 per cent. Apart from this we may see policies and incentives towards irrigation and insurance of farm crop.

Is the government's digital push any good for the Indian farmer? What will be the overall impact of the so-called 'Digital India' on the country's farmers and agricultural labourers?

Our economy is getting digitised, so should the farming sector be. I completely agree that a digitised farming community can be much more efficient and informed than the current one. However, this will be a challenge to both the farmers and the stakeholders working with the farming community. Currently, mobile penetration in the farming community is less than 40 per cent, therefore, limiting the potential to have mobile-based digital services. However, on the long run digitisation can bring in benefits such as better price information, response to climate changes, adoption of new technologies, better working capital management etc. On the other hand, private and public organisations working with the farmers also need to bring in digital business models to have efficiency in procurement, extension, payment solutions, farmer/ vendor management etc.

The Modi government has already promised to increase Indian agriculture's profitability threshold to more than 45 per cent in the next few years, and to double the agricultural production by 2020. Is it even possible? If it is, how?

The agriculture sector is fundamentally challenged by multiple issues such as low mechanisation, dependency on rainfall, high cost of inputs, unorganised market structure, inadequate infrastructure, availability of credit, limited farm insurance etc. Making the agricultural operations viable for marginal or small farmer will be a very uphill task although not impossible. Similarly, the target of doubling production will require strong focus on R&D, a very effective extension mechanism and above all convincing farmers to adopt to a new age agriculture.

According to DIPP report, the Indian agricultural services and agricultural machinery sectors cumulatively received FDI equity inflows of about $2.28 billion from April 2000 to March 2016. What's your take on FDI inflows in this sector? What policy push does it require to attract more foreign money?

The focus of many states is changing to streamline its policy and investment environment to boost investor confidence. This can be seen from the examples of Gujarat which has been able to attract global investors in agricultural sector. AP and Telengana and many other states are following suit. The equity flow of foreign investors will depend on the state of basic infrastructure (roads, agri markets, land availability, storage and processing capacities etc) policy framework (investment policies, availability, ease of doing business etc) and suitability to the business plans. Appropriate policy measures to improve these areas needs to be undertaken. There is likely more investors to get in agricultural and food processing sector. We can expect investment in field of agri logistics, warehouses, processing infrastructure. We can also see more home grown investors participating in the new projects. However this needs to be supported by financing through banks/ PE firms.

CSO estimates show that the share of agriculture and allied sectors in FY16 was 15.35 per cent of Gross Value Added. In spite of being a major contributor to the economy, investment in this sector, on which more than 60 per cent of the country's population depends, has grown at a slow rate in the past few years. What can be done to improve that?

The Gross Value Add (GVA) of agriculture is Rs 10.5 lakh crores. Indian agriculture contribution to the economy is more than the world average of 6.1 per cent. As the economy will progress the contribution will lower while the contribution of value added segment of processing and services in the sector will increase. In order to make agriculture sector more robust we need to have huge amount of public sector investment in providing fundamental facilities such as roads, markets etc. which will enable the sector and make is more attractive for private sector investment. The private sector investment will flow in areas of agri-input, farm services, storage and logistics, processing infrastructure etc which are more business oriented spends. If we take a horizon of 10 years we can find increase in private sector investment if public expenditure is increased to enable the sector.

The Indian agrochemical industry is expected to grow 7.5 per cent annually to reach $6.3 billion by 2020, with domestic demand growing at 6.5 per cent a year and export demand at 9 per cent annually. Do we expect anything more for this industry in Budget 2017?

The consumption pattern of agrochemicals has been more or less same in the last few year as there was no major crop shift seen. The growth has started to come in export market specially through entry into the african markets. The budget may look at policy measures for faster registration and patenting of new molecules. we also need strong R&D in this sector so that we can come out with effective products for field crops.

A large cultivable area in the country is still unirrigated which limits the per-unit productivity of agricultural operations. How can this challenge be addressed?

The government's measure to create irrigation infrastructure under Pradhan Mantri Krishi Sichai Yojna is an excellent initiative. The Budget outlay for the same was Rs 5500 crores. We can expect to see more budget allocation under this scheme. With an irrigated land the per unit productivity can go up to 2.5 times, therefore, this should be a key focus area for the sector and the Budget.

Shouldn't the finance minister announce a nationwide policy framework to promote R&D in the agriculture sector?

Our R&D has brought out good products in the seed, animal husbandary, soil, irrigaton and other segments. However the key disconnect is the commercialisation of these new technologies and products. There should be a greater focus on commercial research and commercialization of products derived out of such research. If there has to be a policy, it should focus on the above concerns.

To what extent can technology intervention be allowed in the agriculture sector, Considering that our farmers are not much adept yet in using technology?

To my understanding technology can bring the next green revolution in Indian agriculture. With time we are witnessing the concept of digitisation and cashless economy being introduced in the erstwhile conventional businesses. Indian agriculture will also stand to gain from such initiative. However, to ensure greater penetration and adoption we have to invest in effective extension mechanism which is an important enabler for achieving this transformation.