By Prashansa Srivastava

The budget released on 1st February 2018 for the fiscal year 2018-19 was a farm-focused budget. As expected, the budget increased funds and resources to the rural economy and agriculture sector taking into account the mass discontentment among farmers. The budget also introduced a host of schemes to boost rural incomes, establish bargaining power to the farmer and improve rural demand.

Increase in the Minimum Support Price

The government has promised to increase the minimum support price—the price assured by the government to farmers—for Kharif (monsoon-sown) crops such as rice, soybeans, cotton, and pulses, a move aimed at fulfilling Prime Minister Narendra Modi’s promise of doubling farm incomes by 2022. Following the years of low crop prices, the MSP will be fixed to guarantee farmers at least 50 percent returns on production costs. However, the ambiguous definition of production cost and the calculation of imputed labour and rent has long made this scheme problematic. The government also directed the think tank NITI Aayog “to put in place a foolproof mechanism so that farmers get an adequate price for their produce”.

To address the steep price fluctuations in widely consumed vegetables such as onions, potatoes and tomatoes, the budget allocated Rs 500 crore to a new programme termed Operation Greens, which is essentially a price fixation scheme.

Institutional mechanism

The government has also allocated funds to improve institutional mechanisms and develop the agri market. The finance minister announced the creation of a Rs 2,000 crore agri-market infrastructure fund to connect 22,000 rural markets to the electronic national agriculture market (eNAM, an online agriculture marketplace) platform. The government announced full implementation of the eNAM system by March 2018, which would empower the farmers with ample bargaining power to fetch justified prices. However, so far the scheme has failed to catch on. According to an RTI, although 57,52,104 users were registered with the e-NAM scheme, there were only 1,69,984 average daily users of the platform, which is less than three percent of the registered users. To increase usage and facilitate the small farmer’s access to these online platforms, the government has announced plans and allocated Rs 2,000 crore to upgrade rural haats or Gramin Agricultural Markets, which would be linked to e-NAM. A Rs 2,000-crore Agri Market Infrastructure Fund was also announced for developing nearly 22,000 rural Haats into Grameen Agricultural Markets, and for upgrading the 585 existing Agriculture Produce Market Committees.

The budget has promised to liberalise farm export policies and set up state-of-the-art testing facilities in 42 mega food parks to boost exports. According to Mr Jaitley, the country’s current $30 billion (Rs1.9 lakh crore) agricultural exports industry has the potential to reach $100 billion (Rs6.38 lakh crore). India is one of biggest producers and exporters of agro commodities, with agro-products accounting for over ten percent of the country’s total exports.

Implications

However, the rise in the minimum support price along with increasing exports will lead to high food bills for the country. The increase in MSP will have a direct impact on inflation. Meanwhile, boosting exports will reduce the supply within India, adding to the price rise. Considering India’s macroeconomic vulnerability, inflation has already been steadily rising. If it increases by worrying levels, an increase in interest rate will soon follow, which will lead to sluggish growth due to declining private investments.

The government has not declared any change in allocation to the Mahatma Gandhi National Rural Employment Guarantee Scheme from the current Rs 55,000 crore. The scheme has in the past suffered from a shortage of funds and failed to provide sufficient wages to workers. Other problems such as corruption, misuse of funds and structural issues like delayed payments have long hindered the growth of the scheme. Several states have exhausted the funds allocated under the plan and have been demanding more money to pay the pending wages. Arrears for unpaid wages from previous years are pending as well. Taking into account inflation, the growth of rural incomes may be negatively impacted.

Can they keep the promises?

The allocations for rural development and other agrarian sectors including social welfare schemes follow the trends of the last few years. The allocation for agriculture, for example, has been raised by 12.8 percent, the same as the last time. The allowance for the rural sector has been increased by 1.8 percent, which is substantially less than the 19 percent hike in the previous budget. The allocation for the Prime Minister Awas Scheme which aims to provide people with housing has been cut by five percent. Its rural component has been cut from Rs 23,000 crore to Rs 21,000 crore. Similarly, the increase in the allocation for social sector schemes in this budget is 14.5 percent, less than 21.4 percent in 2016-17. These allocations mainly bring benefits to the rural economy. In 2018-19, the central government will also spend less on Pradhan Mantri Krishi Sinchai Yojana, Integrated Child Development Scheme and Swachh Bharat Mission, among other major schemes, as compared to the previous year.

Thus, although the government has made several promises in the budget concerning agriculture and the rural economy, the full implication and feasibility of the schemes keeping in mind the budgetary constraints make the fulfilment of these promises doubtful.

Featured Image Source: Visual Hunt

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