While the farmers’ agitation has focused the attention of the country on the travails of the agriculture sector, the Union budget on February 1 next week may not reveal the direction of reform trajectory India will follow over the next decade.
During the last two years, a number of important economic decisions were not announced in the budgets presented to parliament. Thus, the decision to reduce the corporate tax rate from 30% to 22% was announced on September 20, 2019.
In May 2020, at the height of anxiety about the impact of COVID-19 on the Indian economy, the finance minister held five press conferences and gave details of five packages, initially announced by the Prime Minister under PM Narendra Modi’s Atmanirbhar Bharat Abhiyaan. It was claimed that the packages will amount to Rs 20 lakh crore.
She also made several announcements in the agriculture package, including amendment of the Essential Commodities Act (ECA), 1955, and enactment of laws by the Centre to streamline agriculture marketing.
Rest, as they say, is history.
Three major changes to existing governance of the agricultural economy have been under discussion for years. These are: reforms to fertiliser subsidy, electricity subsidy and management of water resources
Fertiliser subsidy
On November 12, 2020, the government suddenly announced that it will provide an additional Rs 65,000 crore for fertiliser subsidy. This was in addition to Rs 71,309 crore already budgeted for 2020-21. Fertiliser companies had arrears of fertiliser subsidy of about Rs 48,000 crore on April 1, 2020. For several years, the fertiliser companies were not even paid the entire amount of subsidy incurred by them during the year.
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While the provision of additional grant to clear the arrears of fertiliser subsidy was perhaps unexceptionable as a good budgetary practice; quite possibly the industry itself would have least expected it in a year when the GDP is projected to shrink by at least 7%. The Union budget for 2020-21 projected collection of Rs 26.33 lakh crore from direct and indirect taxes. Due to the devastation of the economy on account of COVID-19, the actual collection may be only about Rs 19.33 lakh crore, a good 26.6% lower than the budget estimates. It is clear that the fertiliser industry has been very lucky.
It was generally thought that payment of arrears of fertiliser subsidy is a precursor to major reform in the administration of fertiliser subsidy. However, as a fallout of the farmers’ agitation against the farm laws, it seems unlikely that the government will go for direct benefit transfer of fertiliser subsidy. In the absence of any record of tenancy, DBT can only reach the land holder and not the actual cultivator.
A farmer arranges harvested tomatoes in a tractor trolley on the outskirts of Ahmedabad, India, February 7, 2018. Photo: Reuters/Amit Dave
Secondly, the present consumption of fertilisers and therefore the subsidy availed varies widely across states. In Punjab and Haryana, the consumption of N, P and K in 2018-19 was 224.5 kg per hectare while it was only 70.6 kg per hectare in Odisha and 61.9 kg per hectare in (undivided) Jammu and Kashmir. Also, consumption of fertilisers depends on the crops grown and the area cultivated – whether it is irrigated or un-irrigated So, fixing a uniform amount of fertiliser subsidy for farmers in all the states and UTs of India is not going to be easy.
The opposition to hastily enacted farm laws would have already persuaded the government to make much more effort to have wider consultation with stakeholders.
FCI arrears
The second major item of subsidy which is unlikely to be fully paid by the government even in 2021-22 is food subsidy. Dr Shankar Acharya wrote in Business Standard that “fudging budget numbers has become a serious problem in recent years”.
For several years, the government has not been paying even the food subsidy incurred by FCI in a year. As a result, arrears of subsidy have been mounting up. The arrears of FCI went up from Rs 1,35,514.52 crore on March 31, 2018 to Rs 2,42,905 crore on March 31, 2020. Due to additional allocation of wheat and rice under Pradhan Mantri Garib Kalyan Yojana, an additional quantity of 315.2 lakh tonne has been issued this year. As a result, it is estimated that on March 31, 2021, the arrears of FCI alone will reach Rs 3,48,808 crore.
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The arrears of food subsidy in decentralised procurement states (DCP) are not even known.
PM Kisan and APMCs
The largest allocation in the budget of the Ministry of Agriculture (Rs 75,000 crore in 2020-21) is for PM-Kisan. It is unlikely that the government will reduce this allocation.
A surprising announcement in the budget could be a new scheme for improving the infrastructure of APMC mandis, including modern facilities for drying, sorting, grading and storage. The focus of the farmers’ agitation has been a fear that business will move out of APMCs to trade areas. A handsome budgetary allocation for APMCs can show that the government is not for deterioration of the AMPCs and it would rather like them to continue and give good competition to trade areas. Now that the fees and other charges in AMPCs have been substantially reduced in most states, they can continue to be the first choice for primary marketing of agricultural produce.
Poultry and fisheries sectors have seen growth rates exceeding 8% annum, mostly without much incentive from the government. Setting up of modern marketing facilities for these in all metropolitan cities of India is need of the hour.
And lastly, our wish list includes a clear and unequivocal message to reduce the area under paddy and sugarcane in water-stressed districts of India. A financial incentive, shared by the Centre and the states can lay down a road map for such diversification.
Siraj Hussain was Union Agriculture Secretary. At present, he is a Visiting Senior Fellow, ICRIER. Jugal Mohapatra retired as Union Fertiliser Secretary.