Seven years of low crude prices, five years of above normal monsoon topped by good agriculture production, and everything looked positive for a strong economic performance. But, the promises made in 2017 of doubling farmers’ income by 2022 for instance, seemed hollow. After every crisis in the recent past, we thought that things could not get worse, but somehow they did. The Economic Survey makes it evident — the ministry of finance didn’t have much of an arsenal to combat the uncertainty. Considering the revenue shortfall due to the pandemic, many might describe the budget as a brave attempt. The Finance Minister was in an unenviable position.
It was heartening to hear the government validating its commitment to MSP procurement, which has expanded across regions and more farmers are benefitting. Allowing the APMCs to tap into the Agriculture Infrastructure Fund is also commendable as the money borrowed to develop mandis will now be eligible for interest subvention. Extending the Operation Green scheme to all perishables is noteworthy and so is starting the Kisan Rail. The budget appears to be more transparent than previous exercises and has projected a three to five-year vision. But policies in India and their implementation lack an active interface between those who frame them and the supposed beneficiaries. This is also evident in the way the contentious farm laws were drafted and enacted. In the words of economists Anne Case and Angus Deaton, “The government needs to correct the process, not try to fix the outcomes”.
Farm processes are somewhat similar to the budget making process: A crop is the outcome of innumerable causations, more policy induced than natural. While farmers take cue from market signals and government policies when they plant crops, the budget is seeded by big business and political considerations. In a market driven economy, as envisioned by the budget, the income, wages and salaries of the masses need to rise first for the benefits to hopefully trickle down to farmers.
A budget is more than an allocation-making exercise — the timing of an announcement is equally important. Increasing import duties on cotton when farmers have sold their crop to the Cotton Corporation of India, traders and textile companies seems like robbing Peter to pay Paul. Farmers rightly feel the terms of trade are steadily getting skewed against them. One example will suffice for the moment: Since 1973, the price of gold has increased more than 169 times, the price of diesel 91 times, but the price of wheat has increased merely by 25 times. This dynamic does not appear to be self-correcting.
The agriculture insurance pipeline that drains precious government resources in the name of the farmer should have been turned off. For example, the government owned Agriculture Insurance Company of India has incurred losses of Rs 10,000-crore, while the private insurance sector raked in profits of approximately Rs 50,000 crore. Many states have stopped participating in the programme — Bihar, West Bengal and Jharkhand have stopped, while Maharashtra and Madhya Pradesh are also about to dump the scheme. In the 18 states where the programme is working, 20 districts account for about 80 per cent of the losses. I wonder if the department even told the PMO the harsh truth, before celebrating five years of revenue drain last month. Only a holistic approach developed in conjunction with practitioners for better utilisation of resources and redirecting them appropriately can work. We have always advocated a farmers’ commission to assess government programmes pertaining to rural India, because it would be futile to expect the departments to self-assess.
How the bureaucracy explains a budget provision to the Finance Minister is quite different from how farmers would elucidate on the subject. A peek from the farm can be quite disturbing. I grow kinnow and each acre can yield a truckload — the same for onions, carrots, and potatoes. A one-way trip of a produce-laden truck from my village in Punjab to Bengaluru consumes 700 litres of diesel. The per trip fuel tax amounts to Rs 30,000 and the road cess comes to Rs 15,000. Therefore, each acre is yielding the government a revenue of Rs 45,000. This season the farmgate price for kinnow is about Rs 8 per kg and for carrot it is Rs 7 per kg. The fuel tax the government is collecting in such cases amounts to an extra Rs 3 per kg on the farmgate price. This is illogical as ultimately it is the consumers who are picking up the tab unknowingly. The unintended consequences of the diesel tax add to food inflation, compress consumer demand and reduce their appetite for nutritious food. Taxes on fuel should be reduced as this leads to a vicious cycle where the government is compelled to suppress farm gate prices which adds to farmers’ distress and leads to protests.
Investment in human capital, science and research remains the Achilles heel of Indian policy. The budget allocation for agriculture research and education has constantly declined from 0.31 per cent of the gross value added of agriculture and allied activities in 2011-12 to 0.24 per cent now. To realise India’s growth story and for us to be in the big league with the developed nations we need to match their R&E allocations of 2.5 per cent. In India, most of the agriculture related works fall under the preview of the states or require proportionate funding from them. Almost invariably, there is failure in delivery as the states are financially strained to invest their share. The central government also holds the states to ransom by withholding their share of GST funds. The Central government has, in fact, often transferred revenue from the common shared pool to the central pool by imposing a cess, as in the case of the agriculture infrastructure fund in this budget.
In the second quarter of this financial year, glimpses of the V-shaped recovery were, no doubt, accurate depictions of the moment, but they do not indicate what lies ahead. Rising crude and international agriculture commodity prices along with a high probability of a failed monsoon loom over the horizon and will adversely impact government finances. The government is aware of this but seems not to know how to deal with the predicament.
This article first appeared in the print edition on February 3, 2021 under the title ‘The farm reality check’. The writer is chairman, Bharat Krishak Samaj