Budget – A major push to agriculture

The Union Budget identifies agriculture as one of the sectors which has shown a growth of 2.5 per cent in the current year. The Union Budget clearly establishes supply chain bottlenecks as one of the key issues in agriculture and one of the primary reasons for demand-supply gap and inefficiencies in post harvest distribution.

With an aim of “faster, sustainable and more inclusive growth” the Finance Minister has clearly identified “supply bottlenecks in agriculture and delivery systems” as one of the top five objectives that the government must address effectively in the ensuing fiscal year. Given that agriculture is recognised as central to our nation's growth strategy, it is critical to implement measures planned to boost agricultural development and reduce supply bottlenecks in the union budget, and look for enablers that would allow us to achieve this objective.

Agricultural Development – Key Focus areas

Building on the four-pronged strategy of agricultural production, reduction in wastage of produce, credit support to farmers, and a thrust to the food processing sector envisaged in the previous budget, the finance minister has emphasised on the need to remove bottlenecks in production and distribution of food products that are driving inflation. Some of the key focus areas include:

Increasing farm productivity

The green revolution envisaged in the Eastern region of the nation has been given a further fillip by increasing the allocation to Rs 1,000 crore, an increase of 150 per cent with a focus on rice based cropping systems catering to the Eastern region's requirements. This increase in allocation has been primarily due to the significant increase in yield and productivity as a result of this initiative.

The strategy for increasing production of agricultural commodities focuses on providing incentives to farmers through various development programmes. Outlay for programmes under Crop Husbandry is Rs 18,215.78 crore, of which Rs 9,217 crore is for State Plan Scheme, ‘Rashtriya Krishi Vikas Yojna'.

A token provision of Rs 1 crore each has been proposed for new schemes, viz. National Mission on Agriculture Extension, National Mission on Seeds and Planting Material, National Mission on Agricultural Mechanisation, National Mission on Oilseeds and Oil Palm, National Mission for Sustainable Agriculture, Integrated Scheme for Farmers' Income Security, Central Agriculture Infrastructure and Establishment Scheme and National Centre for Crop Statistics in order to further energise the role of these pivotal organisations.

In addition, the National Mission for Protein Supplements and the Accelerated Fodder Development Programme has been strengthened, and to improve productivity in the dairy sector, a Rs 2,242-crore project is being launched with World Bank assistance. To broaden the scope of production of fish to coastal aquaculture, apart from fresh water aquaculture, the outlay in 2012-13 is being stepped up to Rs 500 crore.

Increased access to farm credit

Reinforcing the need to increase the access to credit, the finance minister has raised the target of credit flow to farmers from Rs 4.75 lakh crore to Rs 5.75 lakh crore which represents an increase of Rs 1 lakh crore over the target for the current year. In addition, existing interest subvention scheme of providing short term crop loans to farmers at 7 per cent interest has been retained with additional subvention of 3 per cent to those farmers who repay their crop loans on time. In addition, the same interest subvention on post harvest loans up to six months against negotiable warehouse receipts will also be available, which will encourage the farmers to keep their produce in warehouses thereby providing a much needed post harvest agri-infrastructural support towards reducing farm gate wastage and giving pricing power to farmers.

Post harvest storage infrastructure

Post harvest wastage is a key inefficiency that needs to be corrected and in the budget the corpus of Rural Infrastructure Development Fund (RFID) has been increased from Rs 18,000 crore to Rs 20,000 crore with a special sub allocation of Rs 5,000 crore dedicated for warehouse development.

The Finance Minister has indicated that nearly 15 million tonnes capacity is being created under the Private Entrepreneur's Guarantee Scheme, of which 3 million tonnes of storage capacity will be added by the end of 2011-12, and 5 million would be added next year.

To boost investment in post harvest infrastructure, capital investment in the creation of modern storage capacity has been made eligible for viability gap funding scheme of the Finance Ministry at an enhanced rate of 150 per cent as against the current rate of 100 per cent.

Increasing processing infrastructure

With a view to retain the momentum of private investment in building the food processing capacity of the nation, the Plan outlay for 2012-13 of the Ministry of Food Processing Industries is Rs 660 crore. The allocation under all three components, i.e. mega food parks, cold chain, value addition and preservation infrastructure and modernisation of abattoirs, have been maintained to upscale the execution of these schemes.

The Ministry has also proposed for a major shift in its role from implementing agency to policy formulation with greater involvement of State Governments through newly proposed centrally sponsored scheme of ‘National Mission on Food Processing' for which Plan outlay of Rs 250 crores has been proposed for 2012-13.This Mission will enable the Government to have a better outreach and to provide more flexibility to suit local needs as well as ensuring greater Public –Private partnership in the Food processing sector.

Fertiliser availability and use

A mobile- based Fertiliser Management System (mFMS) has been designed to provide end-to-end information on the movement of fertilisers and subsidies, from the manufacturer to the retail level. This will be rolled out nation-wide during 2012. This step will benefit 12 crore farmer families, while reducing expenditure on subsidies by curtailing misuse of fertilisers

To reduce India's import dependence in urea, the Government plans to finalise pricing and investment policies for urea. It is estimated by the government that with the implementation of the investment policy, country will become self sufficient in manufacturing urea in the next five years. In case of the potassic-phosphatic (P&K) fertiliser, use of single super phosphate (SSP) will be encouraged through greater extension work.

With a view to increase indigenous fertiliser production, the rate of withholding tax on interest payments on external commercial borrowings for capital investment in fertiliser production has been reduced from 20 per cent to 5 per cent for three years.

In addition, capital investment in fertilisers have been made eligible for viability gap funding scheme of the Finance Ministry at a rate of 150 per cent and imports of equipment for initial setting up or substantial expansion of fertiliser projects have been fully exempted from basic customs duty of 5 per cent for a period of three years up to March 31, 2015.

Measures that need focus in the long term

While the budget has broadly focused on the short term imperatives of increasing agricultural production, increased access to farm credit and building post harvest storage and processing infrastructure, an aggressive perspective of trying to double agricultural growth needs to be envisioned. Some of the key enables for this jump-growth include:

Creation of agri-marketing infrastructure.

Incentivised shift towards drip-irrigation.

Incentives for farm machinery and technology.

Creation of a national policy on cropping pattern, with well defined market-linkages.

Creation of a national body collecting global commercial intelligence on crops.

Stable market-linked export-import policy.

Conclusion

The Union Budget's focus on investment in farm production and post harvest management is commendable. However, as the demand for agriculture grows, future union budgets would need to focus on even larger scale investment into fundamental enablers of agricultural growth with a target of achieving at least 6-7.5 per cent per annum growth.

(The author is the Founder, Managing Director and CEO of YES Bank)