Center must not allow agricultural reform momentum to wane
This year’s Union budget will be presented by the finance minister in high-profile elections to state assemblies in Goa, Manipur, Punjab, Uttar Pradesh and Uttarakhand. The electoral commission is unlikely to impose restrictions on the government in announcing new social protection programs.
On the contrary, the government may wish to maintain the momentum of ongoing reforms in agriculture and rural areas, even if the priority is to spend more on health infrastructure amid the pandemic.
The budget allocation of the Ministry of Agriculture increased significantly after the Narendra Modi government took office in 2014.
In 2016-2017, the government decided to transfer the short-term credit interest subsidy scheme from the Department of Financial Services of the Ministry of Finance to the Department of Agriculture and Farmers’ Welfare. In the revised budget estimate 2019-2020, an amount of Rs 75,000 crore has been earmarked for the Pradhan Mantri Kisan Samman Nidhi (PM Kisan). In 2021-2022, the department was allocated Rs 1.23018 crore for three major schemes: PM Kisan (49%), Interest Subsidy on Short Term Credit to Farmers (15%) and Pradhan Mantri Fasal Bima Yojana (12%). These three schemes absorbed approximately 76% of the department’s budget.
These three schemes are too large to cope with a reduction in the financial allocation. It may also mean that for any new scheme included in the 2022 budget, additional funding would be required.
Going by the initiatives underway in the agricultural sector in several states, we hope that the Union government will be liberal in its approach to financial allocations.
Strengthening of infrastructure in APMC markets
In last year’s budget, an Agricultural Infrastructure and Development Tax (AIDC) was imposed on imports like cotton, coal, fruit, fertilizer, gold, silver and beverages. alcoholic beverages and goods that attract central excise such as gasoline and diesel. The tax is not shared with state governments and all revenue is available to the Union government. It is hoped that the economic study and the Union budget will provide details of how much tax was collected and how it was used. In all likelihood, it will be a large sum. In the past, there have been cases where the full amount received as a cess has not been returned to the fund concerned.
In its report for 2018-2019, the Comptroller and Auditor General of India had pointed out that only Rs 1,64,322 crore had been transferred to the respective fund/board out of the total amount of Rs 2,74,592 crore, collected as Rs 35 crore, levies and other charges. The remaining amount was kept in the Consolidated Fund of India.
It should be recalled that the main point of contention between the government and the farmers’ unions was the Agricultural Commodities Trade and Commerce Act 2020 (FPTC Act). While the government maintained that this law did not pose a threat to existing APMC markets (mandi), restless farmers and traders, mainly from Punjab and Haryana, with strong APMCs, felt that the trade zone concept, without transaction taxes, could lead to the slow death of APMCs. In the 2021-2022 budget, the government announced that the Agricultural Infrastructure Fund would provide a grant to CMPAs for improving their infrastructure. It was also promised that an additional 1,000 mandis would be integrated into the electronic National Agriculture Market (e-NAM).
The debate over the Farm Bills since the ordinances were enacted in June 2020 would have hopefully convinced the government that despite their shortcomings, APMCs serve a useful purpose of price discovery and relatively transparent auctioning of produce. Farmers have little bargaining power, but they seem to prefer wholesalers, traders and other small buyers of mandis to companies.
The budget already makes provision for the integrated agricultural marketing program as a centrally sponsored program, but it requires a 40% contribution from the respective states. It is possible that the budget announces a reformulated scheme with increased funding for infrastructure development in the mandis with lesser contributions from states. Better infrastructure for drying, grading, dosing and storing produce in mandis, and a link between APMCs and warehouses registered with the Warehousing Development and Regulation Authority (WDRA) can incentivize farmers to keep their produce longer.
Greater public investment in these infrastructures can also encourage the agro-food industry to source raw materials directly from producers and to undertake the necessary investments.
Need for a Central Law on Interstate Commerce
Even after the three agricultural laws enacted in 2020 have been repealed by parliament, continued engagement with stakeholders is needed.
We hope that the Union government will not let the momentum of agricultural reforms run out of steam. The budget provides an opportunity to announce the enactment of a central law on continued interstate commerce in agricultural commodities. This law will be accepted by states, and farmers will also appreciate it because sudden restrictions on product movement often drive down commodity prices.
Formalizing agricultural trade through warehousing
The Warehousing Act (Development and Regulation Act) was enacted by parliament in 2007. The authority provided for in the act could not become operational until 2010. Registration of warehouses with the WDRA is still optional and banks do not grant any concessions on loan interest against electronic negotiable warehouse receipts (e-NWR) issued by registered warehouses.
As a result, the ecosystem envisioned by the law did not materialize. To date, only 2,328 warehouses are registered with the WDRA. The agriculturally important states of Punjab and Haryana have only about 25 registered warehouses.
We hope the government is aware of the unrealized potential of the WDRA in formalizing agricultural trade by facilitating stock trading and making e-NWR a security.
We are aware that the budgetary space available to the government is limited and that there are competing demands in the sectors of defence, agriculture, industry and services, which makes budgeting an extremely complicated exercise in balancing these demands. There is enough evidence to show that while the formal sector and the stock market have boomed, the informal sector and rural areas have been hit hard by the COVID-19 pandemic.
This budget provides an opportunity for the government to launch pilot reforms that are acceptable to stakeholders and also contribute to improving incomes while generating rural jobs.
Siraj Hussain, Visiting Senior Researcher at ICRIER, is a former Union Agriculture Secretary. Seema Bathla is a professor at the Center for Regional Development Studies, JNU, New Delhi.