Indian Union Budget 2018 - Part-1 - Agro-economy and Implementation Challenges

Indian Union Budget 2018

Part-1: 

Agro-economy and Implementation Challenges

By:
Vijay Sardana

In the year 2016-17, there was a record food grain production of around 275 million tonnes and around 300 million tonnes of fruits and vegetables.

Due to the recent public outcry about the status of farmers’ in India. Government is forced to take the steps for the welfare of farmers. Agriculture marketing and infrastructure are becoming the theme of the budget. For decades, country’s agriculture policy and the programme had remained production centric. This budget is showing a shift in thinking which is a welcome step.

Emphasis is on generating higher incomes for farmers by encouraging bettering marketing connect. Agriculture must be considered as an enterprise and technology and marketing reforms should help farmers to produce more from the same land parcel at a lesser cost and simultaneously realize higher prices for their produce. This will also help in generating productive and gainful on-farm and non-farm employment for the farmers and landless families.

Price Fixation, Stabilization fund and Market liquidation of stocks purchased:

The farmers should realize at least 50 percent more than the cost of their produce, in other words, one and a half times of the cost of their production. Minimum support price (MSP) based on pre-determined principle, the government has decided to keep MSP for the all unannounced crops of Kharif at least at one and half times of their production cost. This is a good decision but implementations will remain a big challenge. Increasing MSP is not adequate and it is more important that farmers should get the full benefit of the announced MSP. It is essential that if the price of the agriculture produce market is less than MSP, then, in that case, Government should purchase either at MSP or work in a manner to provide MSP for the farmers through some other mechanism.  Niti Ayog, in consultation with Central and State Governments, will put in place a fool-proof mechanism so that farmers will get adequate price for their produce. This will be interesting what will emerge from the consultation.

Caution: In concept, this looks attractive but what government will do with these expensive stocks compare to international markets. If the procured material is sold at a subsidized price by the state government, this will destabilize the whole market. The private sector will withdraw from the market and will wait for the government to buy and sell at a subsidized market price. This is precisely happening when traders were buying from FCI and exporting to other markets. Government will get double hit. First subsidy while procurement and then subsidy for exports. Is this sensible approach and for how many commodities? 
So, now government must also elaborate how they will liquidate the procured crops. 
Examples: 

• What is happening to pulses procured by government departments? 
• What is happening to wheat and rice stocks with FCI? 
• Why India lost export market of maize?
• How traders exploited FCI for wheat and rice exports? Study old scams.

Demand and Price Forecasting Mechanism:

For better price realization, farmers need to make decisions based on prices likely to be available after its harvest. The budget says Government will create an institutional mechanism, with the participation of all concerned Ministries, to develop appropriate policies and practices for price and demand forecast, use of futures and options market, expansion of warehouse depository system and to make decisions about specific exports and imports related measures.

Caution: Will political system accept these markets. Till date they all were criticizing these markets and now they want to use the same markets for their political agenda. It is like Aadhar card - first criticized and now using for everything. This will need a change in tax policy and income tax policy for participants in commodity trade because this market is filled with uncertainty. RBI must also review policy to extend credit line for such players dealing in commodities. Essential Commodity Act must be amended to bring comfort to commodity markets so that threat of stock-limit should not create political risk for all.

Marketing Infrastructure and outdated laws:

The government proposed a strengthening of e-NAM and to expand coverage of e-NAM to 585 APMCs. 470 APMCs have been connected to e-NAM network and rest will be connected by March 2018. More than 86% of our farmers are small and marginal. They are not always in a position to directly transact at APMCs and other wholesale markets.  Government proposes to develop and upgrade existing 22,000 rural haats into Gramin Agricultural Markets (GrAMs). In these GrAMs, physical infrastructure will be strengthened using MGNREGA and other Government Schemes. These GrAMs, electronically linked to e-NAM and exempted from regulations of APMCs, will provide farmers facility to make a direct sale to consumers and bulk purchasers.  An Agri-Market Infrastructure Fund with a corpus of `2000 crore will be set up for developing and upgrading agricultural marketing infrastructure in the 22000 Grameen Agricultural Markets (GrAMs) and 585 APMCs.

Caution: Why government is not keen to dismantle APMC Act itself - root cause of farmers distress. Why we need APMC in today's world?  This will continue to create market distortions and tax pilferage by the traders and buyers. Why will trader pay mandi tax when the alternate option is available next door? This policy will distort work culture in the value chains.

Cultivation of horticulture crops in clusters:

There is a need to develop a cluster-based model in a scientific manner for identified agriculture produces in our districts in the same manner as we have developed a model for the industrial sector. Cultivation of horticulture crops in clusters bring advantages of scales of operations and can spur establishment of entire chain from production to marketing, besides giving recognition to the districts for specific crops. The Ministry of Agriculture & Farmers’ Welfare will reorient its ongoing Schemes and promote the cluster based development of agri-commodities and regions in partnership with the Ministries of Food Processing, Commerce, and other allied Ministries.

Caution: This is a good step. There is a need to ensure comprehensive planning in the lines of the Industrial cluster with export competitiveness.

Farmer Producer Organizations and Organics

Organic farming by Farmer Producer Organizations (FPOs) and Village Producers’ Organizations (VPOs) in large clusters, preferably of 1000 hectares each, will be encouraged.  Women Self Help Groups (SHGs) will also be encouraged to take up organic agriculture in clusters under National Rural Livelihood Programme. Ecology supports the cultivation of highly specialized medicinal and aromatic plants. India is also home to a large number of small and cottage industries that manufacture perfumes, essential oils, and other associated products. Government shall support organized cultivation and associated industry.

Caution: There is need to develop quality standards and trade norms for the development of this sector. This will need major research program and trail data to prove the claims for the world market. We will also need laboratory infrastructure of world class to meet the projected targets.

Food Processing Sector

Food Processing sector is growing at an average rate of 8% per annum.  Prime Minister Krishi Sampada Yojana is flagship programme for boosting investment in food processing. Allocation of Ministry of Food Processing is being doubled from Rs. 715 crores in RE 2017-18 to Rs. 1400 crore in BE 2018-19. The government will promote the establishment of specialized agro-processing financial institutions in this sector.

Caution:‘Me-too’ products are too many. There is need to have proper product development and packaging development mainly for Indian traditional foods. This need change in the mandate of our universities and food research related organizations. The private sector should be encouraged to bring marketing and consumer experience while doing this.

Perishability management and Food inflation:

Tomato, onion, and potato are basic vegetables consumed throughout the year.  However, seasonal and regional production of these perishable commodities poses a challenge in connecting farmers and consumers in a manner that satisfies both. Government proposes to launch an ‘‘Operation Greens’’ along the lines of ‘‘Operation Flood’’. ‘‘Operation Greens’’ shall promote Farmer Producers Organizations (FPOs), agri-logistics, processing facilities and professional management.

Caution: This will remain a challenge because there is no storage technique for tomatoes and onions which can be stored for off-seasons. It will be interesting to how the government will be able to address this challenge. This will need a change in food laws and also research to have varieties specific technologies.

Agriculture exports:

India’s agri-exports potential is as high as US $ 100 billion against current exports of US $ 30 billion. To realize this potential, export of agri-commodities will be liberalized. Proposal to set up state-of-the-art testing facilities in all the forty-two Mega Food Parks.

Caution: Global agriculture market is suppressed and there is no hope for an upward revision in prices. There is need to have value addition for export markets to recover the cost of logistics and packaging. This will need a change in local laws so that cost of operation goes down. This includes mandi taxes under APMC, local taxes by state government plus bio-security measures to meet global quality norms.

Working Capital for Farmers:

I propose to extend the facility of Kisan Credit Cards to fisheries and animal husbandry farmers to help them meet their working capital needs. Small and marginal farmers will get more benefits.

Caution: Working Capital utilization also need knowledge inputs and market linkages for them to realize the cost-plus profit. Otherwise, these working capital loans will become a liability for the farmers. This means inefficiencies in retail trade must be addressed by making suitable regulatory provisions to protect consumers and farmers from the exploitation of middleman. This will need quality based skill development to manage businesses efficiently. Existing skill developments lack quality parameters and lack accountability on the performance of the trained manpower.