Budget Analysis by Seshadri Chari: Focus on Rural Economy, Agriculture

Seshadri Chari


Agriculture and rural sector has been the back bone of any economy in the world and more so especially in India.

The revival and dominance of the Chinese economy started with the strengthening of the farmers. Even developed economies of the world give special and protectionist treatment to agriculture. Reviving and strengthening the agriculture sector and rural economy has suddenly become very important for the present government given the fact that elections are increasingly being influenced by the rural voters more than the urban voters. Even from sheer economic prosperity point of view, Indian economy depends on a robust rural and agricultural growth more than probably the industrial production and service sector. Little wonder that the Finance Minister has more than once emphasised that agriculture will be the prime area of focus.

The fourteenth Finance Commission recommended that there should be an increase in the states’ share of the total central tax collection. Accepting this recommendation as a step towards cooperative federalism and considering the fact that more than half the state governments are ruled by the BJP or their allies, the centre readily increased state share. But correspondingly many central schemes were also withdrawn or their outlays curtailed. The states began allocating the central tax component to urban schemes like roads and water supply and other urban requirements. This considerably reduced allocation to rural and agricultural schemes.

Rural economy, already witnessing setback as a result of demonitisation and introduction of GST, was left cash starved. As a result of this the farm sector abandoned all new inputs in the sowing season. Naturally, agricultural production saw a drastic fall and consequential lower growth in wholesale price of agro products. Anti inflationary measures, much to the benefit of the urban population, kept the wholesale price lower but came as a dampener to the farmers.

Many of these factors have forced the farmers to take back very little from the mandis. The rural expenditure by the states was about fifteen percent in 2005-2006 and rose to thirty six percent in 2014-2015 but came down drastically to an all time low of about eleven percent in 2016-2017. The Finance Minister in his budget speech has recognised this fall in rural expenditure and promised to allocate more for the farm sector. Many of the reports prepared and released by the agriculture ministry highlighted the alarming figures pertaining to widening gap between agricultural production and income levels.

Realising the urgency of the situation and needs of the farmers, Finance Minister Arun Jaitley has provided increased institutional credit target for agriculture for the financial year 2018-19 amounting to Rs 11 lakh crore from Rs 10 lakh crore. This will allow the government to step up efforts to ease availability of funds to the farmers and for the agriculture sector in general. The recent events have highlighted the discontent among farmers who have to increasingly depend on secondary sources such as local money lenders for small loans and accommodation money, highly detrimental for them as well as the rural economy.

The Finance Minister has reiterated the government’s resolve to treat agriculture sector as an enterprise. This means the farmers’ income has to go up in proportion to their land holding, crop pattern and investments such as input cost etc. In a way, agriculture should be treated as an industry and subject to all the factors of production, sales and consumption.

Keeping in view the importance that agriculture has assumed, the finance minister has carefully crafted this budget with maximum emphasis on rural and agriculture sector.

The proposal to implement MSP for all crops is a very encouraging one especially for the farmers as most of them depend on multi-crop farming. Besides, the MSP has been increased to 1.5 times of the production cost. This will immensely benefit the small and marginal farmers who account for almost 86%. But there are two issues here. One is that the system of determining the cost of production is a very cumbersome one and is usually decided by a set of people who are directly concerned with agriculture. Again they take a very long time, sometimes as much as six to eight months to decide the cost of production and the MSP based on it. Another factor is the multiplicity of produce. In these circumstances, by the time the MSP is decided and implemented, the market has changed and the demand supply position would have altered.

The budget also proposes to upgrade Grameen Agricultural Markets and APMCs that are the life line of the agriculture. There are also incentives for Women Self help Groups to undertake organic farming. All over the world organic products have good market. But this will also require tweaking of the pesticides and other inputs that go into organic farming.

The Budget has also allocated 2000 crores for building rural infrastructure mainly to assist in agriculture. This is no doubt a welcome step but the amount is woefully small compared to the requirement. Anything less than two lakh crore for rural infrastructure should be considered insufficient if one has to do a sincere and sustainable job.

The provision of ten lakh crore to as credit to farmers with 60 days interest waiver and increase of NABARD fund to 40,000 crore is also a welcome step. The idea of setting up smaller Krishi Vigyam Kendra for soil testing and extending other advisory services to farmers will be seen as very constructive step if they are implemented with all sincerity and monitored properly.

The proposal to set up dedicated micro irrigation fund under the supervision of NABARD with an initial corpus of 5000 crores is also a very encouraging step. This again will help in identifying and bringing non –irrigated land into the fold of arable land.

The first Budget after the announcement of GST has come as a huge relief to farmers and is expected to give a fillip to rural economy and the agriculture sector which has witnessed many stressful years.

(The author is member of the National Executive Committee of the BJP and an expert commentator on economic and strategic issues).