Do you know how much an Indian farmer earns? In 17 states, he earns less than ₹20,000 annually, according to National Sample Survey (NSS) data. This is the challenge of survival faced by the 42% of Indian households that depend on farming for their livelihood.
When it came to power in 2014, the BJP had promised to double farmer incomes in five years. It is now trying to make good that promise. Unfortunately, the two intervening drought-riddled years have made the problem of income stability more urgent than income growth.
A good monsoon in the summer of 2016 remains key to any turnaround in [farmers'] income from cropping.
The government has tried to tackle the problem of income stability through the new crop insurance scheme, Prime Minister Fasal Bima Yojana, designed to protect farmers from weather and market shocks. The other reform in this direction is the shift to direct cash transfer of subsidies to beneficiaries, to help marginalized farmers and prevent leakages. The start has been made with fertilisers in a few districts. Five lakh farm ponds and dug wells in rain-fed areas and 10 lakh compost pits for production of organic manure will be taken up under MGNREGA.
Given the depressed crop production and unfavourable growing conditions, for the majority of farmers the only ray of hope remains livestock, poultry and dairy operations. A good monsoon in the summer of 2016, therefore, remains key to any turnaround in their income from cropping.
Assuming that the monsoon is normal (there is only 22% likelihood of a timely La Niña episode to bring good rain), does the Budget create the potential for doubling farmer incomes by 2022? The answer to that lies in examining its likely impact on agricultural competitiveness.
Agriculture is a business standing on five pillars.
The first is high productivity which depends on the availability of inputs such as water, healthy soil, high-tech seed, fertilizers and pesticides. Like previous years, the Budget raises the allocation for irrigation under several schemes. As always, their success will lie in the speed with which they are able to ensure last-mile connectivity in rain-fed areas.
[T]he Budget raises the allocation for irrigation under several schemes... their success will lie in the speed with which they are able to ensure last-mile connectivity...
However, the Budget avoids the critical challenge of water use efficiency by promoting micro-irrigation and incentives for sustainable usage or "more crop per drop". Although water is one of India's most scarce natural resources, the country uses two to four times the amount to produce a unit of major food crop than do China and Brazil.
There is no incentive for bringing the latest hybrid seeds into the country. Indeed, there is no mention at all of promoting agricultural research, especially in the private sector. India's current spending on agriculture research is considerably below that of China and as a share of agriculture GDP even less than that of Bangladesh and Indonesia. Soil health cards are a good idea but the nub of the problem lies in distorted usage of fertilizers, which the Budget does not correct.
The second pillar of success is access to timely credit -- both short-term crop loans and capital investment. To reduce the burden of short-term loan repayment on farmers, the Budget has allocated ₹ 15,000 crore for interest subvention. But the key to rapid growth lies in accelerated capital formation both by the private and public sectors. The Budget does not provide any incentive for entrepreneurs and start-ups to focus on providing solutions for agriculture and related businesses. This was also the right opportunity to fully leverage new low- cost technologies such as cell phones and drones that can have wider benefits for agriculture.
The government has shown its continued determination to overcome the hurdles from the federal structure towards creating a national agricultural market.
The third pillar is easy access to markets at the local and national level. Here the government has shown its continued determination to overcome the hurdles from the federal structure towards creating a national agricultural market. Electronic markets are the easiest way for bringing transparency, connectivity and fair prices to the smallest farmer in the most remote village. A dozen states are already on board and more will follow, once the news of its benefits spread by word of mouth. Pushing the Food Corporation of India to use electronic procurement for buying wheat and rice will allow farmers beyond Punjab and Haryana to benefit from its MSP operations, while lowering the food subsidy bill. One missing area of focus is incentives for price dissemination to reduce the wide variation in prices received by farmers.
The fourth pillar of success is the correct storage and processing of produce. The Budget has allowed 100% direct foreign investment in marketing of food processed in India. However, no further incentives have been provided to the nascent warehousing and storage industry. There is also no mention of a roadmap for negotiable warehouse receipts that are key for enabling farmers to take post-harvest credit against their commodity. At a time when the village moneylender continues to provide one out of every four rupees borrowed by the farmer, non-banking finance companies should have been incentivized to quickly expand their rural presence.
Doubling rural income can pull lakhs of families out of poverty and simultaneously raise rural demand. For now, the matter is out of Finance Minister Arun Jaitley's hands.
Last, but not the least, agriculture needs free national and international trade to maximize gains. Farmers are directly impacted by the extreme bearishness in global commodity markets. However, the Budget could have helped increase the export competitiveness of Indian commodities by encouraging quality grading and packaging.
Alongside these five pillars, agriculture also needs enabling institutions such as clearly defined property rights and a healthy market for land leasing and sale. Here, the government's push for digital land records is a long-awaited reform. Digital land records will also be key in making it easier for inefficient farmers to exit the business. The thrust to building rural roads can be instrumental in physically connecting remote villages to more prosperous hubs. The rural digital literacy mission will help farmers to upgrade skills and escape from the trap of information asymmetry. And the rural electrification programme will finally bring a better quality of life to hitherto dark villages.
Ultimately, to stay in the race Indian agriculture has to compete with the pace of growth in China, Brazil and other developing nations. Can our beleaguered farmer expect to earn at least ₹ 40,000 per annum by 2022? The goal is now squarely on the table. This year's Budget takes a few big strides and some baby steps towards it. Doubling rural income can pull lakhs of families out of poverty and simultaneously raise rural demand. For now, the matter is out of Finance Minister Arun Jaitley's hands. Over to you, rain gods.
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