Jaitley’s farm-inclined Budget promises new agricultural schemes – but not the funds for them

Some of Finance Minister Arun Jaitley’s promises to the agriculture sector in his Budget speech may be a little difficult to keep.

Jaitley on Thursday announced two funds together valued at Rs 10,000 crore to develop infrastructure for the fisheries and animal husbandry sectors. But his Budget has allotted only Rs 10 crore to the Fisheries and Aquaculture Infrastructure Development Fund and Rs 37 crore to the Dairy Processing and Infrastructure Development Fund set up in the last Budget. There is no mention of an Animal Husbandry Infrastructure Development Fund.

Jaitley also announced an Agri-Market Infrastructure Fund that would have a corpus of Rs 2,000 crore to develop and upgrade infrastructure in 22,000 Grameen Agricultural Markets and 585 state-run Agricultural Produce Marketing Committee markets, where farmers are obliged to sell their produce. However, the Budget document does not show any allocation to this fund.

Over the past year, farm distress despite bumper production had triggered farmer protests across India. In his speech, Jaitley reiterated the Bharatiya Janata Party’s promise to double farmer incomes by 2022 by increasing the minimum support price the government promises to farmers to cover their cost of production, connecting agricultural markets digitally so farmers are updated on prices across geographic regions, promoting horticulture and food processing.

Despite these gaps, though, the outlay for the three main departments of the agriculture ministry has in fact increased 14.6% to Rs 57,600 crore in the 2018-’19 budget from Rs 50,263 crore in the revised estimate of 2017-’18. This is somewhat higher than the 10.12% increase in the size of overall budget. By comparison, the 2017-’18 budget grew 12.28%, but the agriculture ministry’s share of that increased by 12.96%.

Last-minute irrigation push

In light of the concerns about how climate change could hurt agriculture expressed earlier this week in the Economic Survey, the government’s annual assessment of the state of the economy, the Budget devotes some attention to how farmers access water. It is increasingly evident that India’s monsoons are becoming increasingly erratic due to climate change, constraining farmers in their ability to plan and protect their crops.

Among the schemes Jaitley mentioned was the Pradhan Mantri Krishi Sinchai Yojana, a core irrigation scheme of the government announced in July 2015 that combined three existing schemes. The government has allotted Rs 9,429 crore to it for the coming year.

This is the first time that the Budget has even approached this planned amount. When it launched the scheme, the government said that it would allocate Rs 50,000 crore to the scheme over five years, amounting to Rs 10,000 crore per year.

The lowest it ever spent on the scheme was Rs 5,133 crore in 2016-’17, as is evident from the actual expenditure released in the 2018-’19 budget.

A prominent section of this scheme is the Har Khet Ko Pani component: Jaitley promised Rs 2,600 crore to develop groundwater irrigation in 96 districts where less than 30% of the land is assured of irrigation. But the fine print of the Budget says Rs 2,290 crore of that is meant to pay the interest of the Long-Term Irrigation Fund, a NABARD fund set up with a corpus of Rs 20,000 crore in the 2016-’17 Union Budget to fund incomplete irrigation projects across the country. As a result, only Rs 310 crore of the Har Khet Ko Pani segement seems to be left to develop irrigation in these 96 districts.

Minimum Support Prices an eyewash

Jaitley also promised to implement a key farmers demand – that minimum support prices for crops should be at least 50% above their cost of production to buffer them in case they are unable to sell them in the markets.

“I am pleased to announce that as per pre-determined principle, government has decided to keep MSP for all the unannounced crops of kharif at least at one and half times of their production cost,” Jaitley said in his speech. “I am confident that this historic decision will prove an important step towards doubling the income of our farmers.”

This minimum support price for certain crops is announced by the government at the start of each of India’s two main agricultural marketing seasons. In 2006, the National Commission on Farmers led by MS Swaminathan to study how to to strengthen agriculture and prevent farmer suicides, recommended that the minimum support price should be at least 50% more than the cost of production. In its 2014 election manifesto, the BJP promised to implement this.

But Jaitley was skirting fact when he claimed that the minimum support prices announced in January for the rabi – or winter – marketing season were already 50% more than the cost of production.

The trouble lies in the definition of production costs.

The Commission for Agricultural Costs and Prices, which declares minimum support prices, has three definitions of the concept:

The first is A2, which covers the actual paid out cost of what farmers invest in a crop every season. This covers expenses such as seeds, fertilisers, pesticides and agricultural labourers.

The second, A2+FL covers the actual costs plus the implied economic value of family members working on the farm – work for which farmers would otherwise employ agricultural labourers from outside.

The third, C2 includes A2+FL as well as the rent and interest on the owned land and capital assets.

Jaitley’s claim that the rabi season minimum support prices were already 50% above the cost of production used A2+FL as a base. However, farmers have been demanding that minimum support prices should be 50% more than the C2 cost of production, which they say is a more realistic assessment of their expenses.

As this table shows, the highest the Rabi season minimum support prices go above the C2 cost of production is 38% for wheat. The minimum support price for safflower, however, is a mere 0.53% higher than C2.

While most rabi minimum support prices are higher than the C2 cost of production, the wider gap to close has always been for the kharif or season.

Swaraj India, an organisation working for farmers’ rights, analysed the last four years of kharif and rabi minimum support prices declared by the BJP government and compared it to that of prices under the second term of the Congress-led United Progressive Alliance. They found that on average, the minimum support prices for six of 14 crops had been below C2. The highest kharif minimum support prices went above C2 in 2017-’18 was 20% for urad and 18% for tur, while the minimum support prices for millets such as jowar and ragi, as well as for nigerseed, ranges between 19% and 21% less than C2.

In comparison, the minimum support price for the six crops in the rabi season range from 3% to 38% more than C2 in the same year.

Subsidies don’t match

One problem with minimum support prices is that the government does not always procure the crops for which it declares minimum support prices. In practice, the Centre procures mainly wheat and rice, and occasionally pulses. It then distributes these crops across India through the Public Distribution System.

This procurement comes under the government’s food subsidy expenditure head. The government will need to substantially increase its budget under that head if it is to absorb higher minimum support prices for 22 crops, instead of just wheat and rice. The food subsidy, however, has grown over the years at approximately the same rate as inflation, which means that government will be unable to procure larger quantities of crops at the same price, let alone at a higher minimum support price.

The government also has a Market Intervention Scheme to procure pulses and oilseeds for limited periods. This year, the government cut the Budget for it from Rs 950 crore to Rs 200 crore.

The food subsidy declared in the Budget for 2018-’19 is Rs 1.69 lakh crore, up 16.5% from Rs 1.45 lakh crore in 2017-’18.

However, the government has actually reduced expenditure on the National Food Security Mission by Rs 100 crore from Rs 1,600 crore this financial year to Rs 1,500 crore in the coming one. One of the objectives of the National Food Security Mission in the last Budget was to reduce the import of pulses by 15% and to grow 10 million tonnes of food surplus for export. Neither of these expectations are contained in this year’s Buget.