Union Budget 2019 Highlights - Agriculture Sector to be one of the Prime Focus Areas

In the 2018 Union Budget presented by Indian Prime Minister, Arun Jaitley, multiple reforms have been announced in various sectors, especially agriculture and infrastructure. In fact, agriculture was one of the main focus area of the budget.
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The Union Budget 2019 is one that focuses on farm reforms in an expansionary manner. It was announced by the Acting Finance Minister, Mr. Piyush Goel, in the absence of the Finance Minister, Mr. Arun Jaitley, who is on leave for medical reasons.

The Union Budget 2019 aims to enhance the stability of farm incomes while providing greater bargaining power to small farmers. The boost in rural incomes would have a positive ripple effect on rural consumption and farm inputs.

Reforms announced by the Finance Minister on 1 February 2019

  • Fertiliser subsidy: The budget allocation has been increased by approximately Rs.5,000 crore for the subsidy programme over the last year. Urea-based subsidy was increased while nutrient-based subsidy largely remained the same. This is expected to clear up the outstanding subsidies of urea-based fertiliser companies while supporting the Direct Benefit Transfer (DBT) scheme of the government.
  • Income support scheme: A structured income support scheme was announced for farmers with land holdings that are less than two hectares. Called the Pradhan Mantri Kisaan Samman Nidhi, rural and poor farmers will receive Rs.6,000 per year. This will be transferred in instalments of Rs.2,000 to the bank accounts of the farmers directly the Centre. This will cost the government Rs.75,000 crore and will benefit 12 crore farmers. This amount has been allocated in the Budget with Rs.20,000 crore allocated in FY19. This will support farmers in acquiring fertilisers, seeds, etc. It is over and above the farm support policies that already exist.
  • Dairy development: Rs.750 crore was allocated to the Rashtriya Gokul Mission, which is a reduction from the budget of last year.
  • Crop insurance scheme: The Pradhan Mantri Fasal Bima Yojana saw an increase in allocation to Rs.14,000 crore which is Rs.1,000 crore more than last year. This will help protect farmers during times of crop failure while also increasing the penetration of crop insurance across the country.
  • Minimum support prices: The allocation for market intervention schemes has increased to Rs.3,000 crore from Rs.200 crore with a revision in allocation for FY19 to Rs.2,000 crore.
  • Crop husbandry: The allocation for crop husbandry has increased to Rs.86,600 crore in 2019-2020 from Rs.14,700 in 2018-2019. This will improve the overall soil health, irrigation provisions, and reduce the wagering of the impact of monsoons significantly.
  • Subvention of interest rates: An interest subsidy of 2% was announced via the Kisaan Credit Card Scheme to farmers involved in animal husbandry and other farm-allied activities. This supports them in developing alternate sources of income. Agriculture finance institutions have also received an increase in allocation by approximately Rs.2,800 crore.

Reforms announced by the Finance Minister on 1 Feb 2018

The Finance Minister of India, Arun Jaitley, has addressed the Parliament outlining the measures included in the Budget. Here is a snapshot of the amendments with respect to Agriculture:

  1. The budget looks to accomplish a paradigm shift as far as farmer incomes are concerned. The income of farmers will be doubled by 2020, as agriculture will be projected as an enterprise.
  2. The Minimum Support Price (MSP) for Kharif crops will be 1.5 times the cost of production of the same. If the crops are priced lower than the Minimum Support Price, then the government will ensure that the farmers do not suffer a loss. They will be provided the necessary MSP or an appropriate price.
  3. The government will set up regulations to make sure that 470 Agricultural Produce Market Committees are created and connected to the electronic platform of the National Agricultural Market (eNAM).
  4. The government is also looking at working with NITI Aayog to set up an optimal farm price realisation system. Additionally, 22,000 new gramin agri centres (GRAMS) will be set up to assist farmers in selling their produce directly.
  5. Rs.2,000 crore will be set aside for the realisation of an agricultural market fund.
  6. The government has also doubled the allocation into the food processing sector that is currently growing at the rate of 8% annually. This year, the allocation will be Rs.1,400 crore.
  7. Rs.500 crore has been set aside for Operation Green.
  8. The Finance Minister also revealed that state-of-the-art facilities will be established in 42 food parks for agricultural exports.
  9. The Finance Minister proposed to enable farmers in the fisheries and animal husbandry segments to benefit from Kisan credit cards. Rs.10,000 crore will be allocated for the same. This could result in better animal rearing practices in India and lead to the improvement in the quality of meat available commercially.
  10. The government is looking to take measures to fight pollution due to crop burning and usage of firewood for cooking.
  11. The Krishi Sinchayi Yojana will now include a ground water irrigation scheme that will offer irrigation facilities to regions that do not receive water supply for agriculture.
  12. The government will also be taking several measures to improve warehousing for agriculture.
  13. There will be liberalisation in agri exports, benefitting the sector of pulses.

The sector of agriculture is the backbone of the Indian economy, providing employment to a whopping 48.9% of the entire workforce in the country. This also constitutes 17-18% of India’s Gross Domestic Product (GDP).

It is predicted that the Union Budget 2018 will be a turning point as far as rural initiatives and policies associated with the agricultural sector are concerned. The Modi government will emphasize on the growth prospects of the agrarian segment with an objective to bring about reforms in the market. This, in turn, would ensure that the key players, i.e., the farmers, benefit from better prices for their contributions. It should be noted that the government has been pushing to double the income of farmers in the coming 5 years.

The Union Budget will be presented on 1 February 2018 and would detail the fund allocations for the upcoming fiscal. As per the Union Budget 2016 and the Union Budget 2017, the increase in allocation for the purpose of agri-education was in the range of 10%. The current budget will have a higher allocation for the stream, probably in the range of 15%.

Challenges Faced by the Agrarian Sector

The agricultural sector in the country is bogged down by several challenges that pose high risk to the growth of the industry. This includes the following factors:

  • Farm holding that is fragmented
  • Low capital formation
  • High input cost
  • Lesser productivity
  • Low price for produce that results in farmer debts
  • Restrictions laid down by the agricultural produce market committee (APMC)
  • Thinking that is supply-driven
  • Lack of connectivity with processing units
  • The risk associated with agriculture as a whole

Reforms Expected

For the improvement of the rural economy and for amplifying non-farm incomes, the propagation of rural employment schemes are necessary. This is one of the areas that the Union Budget 2018 is expected to focus on. The reforms in the agricultural sector is likely to include the following:

  • Reforms like the Pradhan Mantri Fasal Bima Yojana, crop insurance, profitability for farmers, facilities to trade electronically, and improvement in agro processing will help in the revival of the segment as a whole and boost farmer incomes.
  • The budget is also likely to focus on the agriculture of vegetables, fruits, and dairy. This sector has the potential to observe a growth of 3-4 times.
  • Dairy and animal husbandry account for 30% of the agricultural share of the GDP. The growth rate in the segment is observed to be 14% as well. The time has come for the dairy industry to be treated on par with the agrarian sector with additional fund allocation. It is also necessary for this segment to receive income tax exemption. In order to meet the challenges of the future, the government should lay down the framework for additional milk processing facilities and aid in the doubling of income of dairy farmers.
  • The government may increase the budget allocation for farm research and education by up to 15%. The allocation in the 2018 Budget for the same is hence, expected to be close to Rs.8,000 crore.
  • The funds are likely to be used on priority basis. The government will focus on agro-innovations in tribal areas and 150 backward districts where farming is practised.
  • There is also consideration on initiating programmes for the use of sensors for agricultural purposes. Animal cloning, bio-fortification, and genome editing are other areas where there will be increased attention.

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