Key positives from the Budget

Today’s column will look at some of the positives in the Union Budget presented this year. Prime Minister Narendra Modi’s reaction to this year’s Budget has set the ball rolling for the larger picture his government seeks to present. “This budget is pro-village, pro-poor, pro-farmer. The main focus is to bringing about a qualitative change in the country,” said Modi. Suffice to say, it is hard not to miss the Centre’s emphasis on reviving the rural sector, with special emphasis on agriculture. Four major agriculture-dependent states—Tamil Nadu, West Bengal, Kerala, and Assam—are set for polls in the next three-four months. Two consecutive drought years and the defeat in the Bihar elections had presented a picture among many that the NDA government had ignored the protracted distress in rural India. 

Therefore, the Budget has placed greater emphasis on the rural sector in a bid to revive agricultural growth, improve farm incomes and increase rural demand. In a major push for the agriculture sector, the Budget announced that funding for the recently launched crop insurance scheme for drought-affected farmers called the Pradhan Mantri Fasal Bima Yojana (PMFBY) has been doubled from Rs 2,589 crore in 2015-16 (budget estimate) to Rs 5,500 for 2016-17. After two consecutive drought-ravaged years, Finance Minister Arun Jaitley was emphatic in his claim that rural India will get the government’s immediate attention. The priority, he argued, is to provide additional resources, especially for the agriculture sector. 

Whatever the electoral compulsions of the NDA government, this newspaper welcomes the government’s initiative. In his presentation of the Union Budget, Finance Minister Jaitley said that the increased funding for the agriculture sector will be primarily diverted to five areas—the creation of a national e-market for agro produce to help farmers get remunerative prices, irrigation schemes, crop insurance schemes, high production of pulses and interest subsidy for farmers under a cloud of debt. The Centre’s decision to set up an integrated national agriculture market for farm produce will give farmers greater freedom to sell their output. According to Jaitley, the national market for farm produce will be launched in April to connect 585 regulated wholesale markets across the country. 

The government will also look to spend Rs 17,000 crore on irrigation projects next year and Rs 86,500 crore in the next five years. To the uninitiated, more than half of India’s farmlands are rain-fed. With the vagaries of weather wreaking havoc, the government has read the writing on the wall and laid greater emphasis on irrigation and drought-proofing projects. As per the final estimates, there has been a 44 percent rise in the overall budget for the agriculture sector from Rs 24,909 crore in 2015-16 to Rs 35,984 crore in 2016-17, as per budget estimates. Moreover, in a bid to kick-start the rural economy, the government has sought to boost the credit available from Rs 8.5 trillion to Rs 9 trillion next year. 

However, the fine print is evidently not clear on how the government seeks to achieve this boost in rural credit. Finally, in a bid to help ease the debt burden on farm loans, the budget has allocated Rs 15,000 crore towards interest subvention. Greater emphasis on pulse production is not only down to the high prices we witnessed last year, but also the slump in prices of key crops like rice, wheat and cotton. Farm incomes took a real hit due the slump in prices of these key crops, allied with crop failures across the length and breadth of this country. The emphasis on pulse production, therefore, will not only stem the shortfall and consequent price rise but also give farmers a better crop option. 

The Budget must be applauded for the proposal to ensure that farmers across the country get the benefit of minimum support price (MSP), besides strengthening procurement at these prices. With 80 percent of procurement by the government happening in only five states, only a small section of farmers benefits from the MSP regime. However, in order to deliver, the Centre and State governments must spread awareness about the possible benefits of government-led procurement and the prices it sets. As a sector that sustains nearly half of all households in India, the 2015-16 Economic Survey released last week was emphatic in its suggestion that government must work towards strengthening the above-mentioned aspects of India’s farm economy. As a sector that saw its growth rate nosedive to -0.2 percent in 2014-15 from 4.2 percent in the previous year, the government has its work cut out. Besides these allocations, an agricultural cess called the Krishi Kalyan Cess at the rate of 0.5 percent will be levied on all taxable services from June 1, 2016. The tax proceeds will be used for initiatives in agriculture and welfare of the farmers.

Suffice to say, a lot has been made of the higher allocations for the Mahatma Gandhi National Rural Employment Guarantee Scheme and rightly so. Finance Minister Arun Jaitley allocated Rs 38,500 crore for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)—a four percent increase from the previous budget at a time when rural farm incomes have seen a serious fall. The scheme mandates 100 days of wages per year to rural households, covering millions of workers. Despite the NDA government’s best efforts, the scheme has witnessed a downward spiral. According to recent figures, less than 5 percent of rural households have completed 100 days of work in 2015-16. A fundamental reason behind this downward spiral could be delays in wage payments. In its recent bid to offset the distress caused by the recent rural crisis, the Centre had declared 50 additional days of employment in drought-affected districts. Unfortunately, data available in the public domain clearly states that in the nine worst drought-affected states, less than 10 percent of households could complete the mandated 100 days of work, with the sole exception of Maharashtra. 

Instead of merely pouring more money into the scheme, the Centre, and its partners in the States must find a way to improve basic accountability and work around these problems to provide rural folks a chance at gainful employment in times of farm distress. Another major source of government-sponsored rural income is the rural roads programme under the Pradhan Mantri Gram Sadak Yojana (PMGSY). Allocation for the rural roads programme has increased to Rs 19,000 crore from the previous year’s outlay of Rs 9,800 crore. 

To the uninitiated, the PMGSY seeks to connect 65,000 villages and habitations still unconnected by roads. According to certain experts, expenditure on such infrastructure  will have a greater impact than MNREGA in tackling poverty, especially in poorer States such as Bihar. “The biggest impact (of PMGSY) has been on (rural) productivity. Once there is connectivity, hitherto isolated hamlets become part of larger clusters of 200-300 villages with 50,000-100,000 consumers, against 1,000-2,000 previously. This allows for economies of scale, specialisation and flourishing of micro enterprises”, says Neelkanth Mishra, an India Equity Strategist at Credit Suisse. Jaitley also made it a point to include women in his agenda for growth – and he aimed to achieve it by providing them LPG cylinders. Rs 2000 crores have been allocated for a national mission to bear the cost of providing LPG connections to about 1.5 crore households below poverty line in the upcoming year. These connections, according to Jaitley, will be provided in the name of women members of the households.