Content vs Intent: What is in it for the Small Farmer in the 2018 Indian budget?

By Samit Aich, CEO, S3IDF India

Now that India’s Union Budget 2018 has blown over, and the usual analysis of the sectoral experts have started cascading, it is not surprising that there is a myriad of opinions being presented, depending on which side of the debate one is on.

It is indeed sometimes difficult to maintain a neutral opinion on matters of national interest. Given the fact that some of these issues touch us citizens in the most prolific matter, it is important to compare and contrast the truth versus the hype, which is usually presented in a budget- especially in a budget that is the final one before a general election next year.

First things, first. The 2018 budget significantly acknowledges two very important facts. One, that there is a deep agrarian crisis that is also exacerbated by the impending march of climate change. Two, the budget recognizes that access to universal healthcare is critical and thus the announcement of the National Health Protection Scheme is welcome. These two considerations are game changers in many ways but one has to also acknowledge that tackling these two crises are beyond the scope of one budget and needs a fundamental long-term perspective, of which only strong governments like the current one are capable.

Two debates that have indeed grabbed the headlines consistently over the recent few years have been the twin issues of agrarian distress and of jobless growth. The tragedy of agrarian distress is no figment of imagination and given the fact that 64% of the country’s rural population is involved in agriculture, which in turn contributes to 17.9% of the national GDP, any stress in the system has a cascading effect of catastrophic proportions. It is also important to note that the Economic Survey 2018–2019 report acknowledges that climate change is going to be an important factor affecting crop production. According to the Economic Survey’s own admission, farmer income losses from climate change “could be between 15 percent and 18 percent on average, rising to anywhere between 20 percent and 25 percent in un-irrigated areas”. Indeed, these are scary statistics and the actual reality could be even worse. Superimposing on this statistic is the stated ambition of the government that aims at doubling farmers income by 2022. It does raise the fundamental conundrum of what is going to be done differently to deliver such an ambitious outcome?

The 2018 budget has also promised the Minimum Support Price (MSP) + 50 formula, which is already being questioned by experts of impeccable credentials. To put things into context, the MSP for eligible crops is declared by the Commission for Agricultural Costs and Prices (CACP). The CACP has three different definitions of productions costs — A2 (actually paid out cost), A2+FL (actual paid out the cost-plus imputed value of family labor) and C2 (comprehensive cost of production including imputed rent and interest on owned land and capital). Some noted agricultural experts have pointed out that the announced increase to MSP is insufficient since only a fraction of the farmers actually has access to MSP in the first place. Thus, the announced increase is tiny as it takes only A2+FL into account and not C2. Anyway, data suggests that more than 90% of farmers in our country do not have access to even the A2+FL calculated MSP and they are left to deal with uncontrollable market vagaries on their own. And it seems impossible for the government to commit to C2 as that is a massive amount which is not factored into the budget. It is important to note that as the Budget numbers go, there is little in it for farmers to gain — the numbers are there for everyone to see. Last year, the share of agriculture ministry was a minuscule 2.38% of the entire Budget. This time, it has dipped to 2.36%. So much lies in the intriguing dark zone between intent and content.

It is very easy to actually get into criticism mode but that’s best left to activists who can do a stellar job at addressing these fine print issues and putting the details on the pedestal of facts. However, on a positive side of the agricultural aspects of the 2018 budget, both the food processing sector and dairy sector have received a massive boost and the Kisan Credit Card facility has been extended to fisheries and animal husbandry sectors. It is imperative to point out that at moments of crises, the rural poor turn to livestock to unlock their asset value, and this should not be underestimated as an insurance during difficult times. A boost to the animal husbandry sector will only strengthen the rural agrarian economy and also build resilience within the small and marginal farming community. This is all the more relevant in a developing climate crisis scenario where managing risks are critical, and balancing between crop and livestock can help small rural households tide over critical times.

There are also some positives around agricultural market development schemes, crop insurance, Institutional credit to farmers, thrust on value-added products, push to food processing and last but not the least, a tax deduction to farmer producer companies (FPC’s). Of course, much of this depends on the implementation on the ground and the reality could be different as experience sometimes shows. For e.g. access to credit many times remains on paper and despite the stellar work done by the NABARD’s and NABKISAN’s, there is an awful more to be done as farmers are still made to run pillar to post, trying to get loans that are originally destined for them in the first place, from local PSU banks.

The proposal to exempt 100% tax deduction on profits to Farmer Producer Companies (FPC’s) less than Rs.100 crore net turnover is an excellent initiative. FPC’s create institutional mechanisms that allow for collectivization of small and marginal landholding farmers without getting into the bind that many large farmer cooperatives sometimes get into. Farmer Producer Organisation’s as collectives and FPC’s, in particular, are gradually getting popular and although there is much ground to be covered, they are making tremendous progress. It is important for sectoral practitioners like NGO’s or agri-business incubators to identify ‘pin pointed pain points’ in the initial life cycle of FPC’s and help support them to be ready for absorbing capital available from institutional mechanisms like the Small Farmer Agri-Business Consortium (SFAC). FPC’s that have better profitability indices are also the ones’ that focus on value-added products, and the government’s thrust on this aspect is a welcome step.

The central issue, which is thus of overarching national interest, is to make agriculture again lucrative enough so that it addresses many of the fundamental issues that plague this country. A vibrant agricultural community allows for rural demand to pick up, allows for an increase in national and local GDP, creates more jobs in the fields, stunts rural migration to already ‘achingly bursting at the seams’ cities and helps meet the country’s food requirements. Of course this sounds very simplistic, but the moot issue remains that if anyone can reverse the current agrarian distress and get things back on track, it is the government. If there is a massive difference between intent and content, what one stares at today is the scary outcome. To be fair, there has been the successively similar stance taken by previous governments, which has led to such a deep agrarian crisis. With a powerful government at the helm, much can be done, if there is the will. The lesser the gap between intent and content, the better it is for those who till the soil.