Union Budget 2015: Agriculture

“By the time of the 75^th year of Indian independence, …India (has to) become a prosperous country and a responsible global power… Madam Speaker, I am mindful of the five major challenges I have to reckon with. Firstly, Agricultural incomes are under stress…” said the Finance Minister in his speech today.

His response to this rightly identified foremost challenge is embedded in three policy statements made in the budget, two sets of budget allocations, and some hope.

The Policy Statements:

1.      “I intend this year to work with the States, in NITI, for the creation of a Unified National Agriculture Market”, promised the FM. Such a unified market has the potential to transfer a larger share of the consumer price to the farmer. When the Economic Survey asserts, “If persuasion fails, it may be necessary to see what center can do, taking account of the allocation of subjects under the Constitution of India”, one sees some hope in converting this potential into reality.

2.      “I propose to merge the Forward Markets Commission with SEBI to strengthen regulation of commodity forward markets”, said the FM. Hopefully, this will ensure dusting the Parliamentary Standing Committee’s Report on the Forward Contracts (Regulation) Amendment Bill 2010, and introduction of Options and other forward looking instruments.

3.      “We need to cut the subsidies leakages, not subsidies themselves” declared the FM. Indeed subsidies are needed for the poor; what we need is a well-targeted system for subsidy delivery. For, these leakages distort the market and act as disincentive to private investments in the sector. As much as 42% of the grain distributed in the Public Distribution System leaks back into the open market per a study. The JAM trinity can help in Direct Transfer of such Benefits, minimize distortion and nurture vibrant markets.

The Budget Allocations:

1.      Rs 100,000 Crores is allocated to Rural Infrastructure Development Fund, and various Long & Short Term Rural Credit Funds. This will surely raise the investment capacity of the farmer and step up the Gross Capital Formation in the sector, besides expanding the much-needed rural infrastructure.  

2.      Funds already allocated to the ‘Deen Dayal Upadhyay Gramin Kaushal Yojana’ and the Scholarships and Loans promised under the ‘Pradhan Mantri Vidya Lakshmi Karyakram’, will enhance the employability of rural youth in non-farm jobs. This will improve the ratio of arable land available per agri worker, which is otherwise deteriorating to unviable and unsustainable levels.

The Hope:

The Economic Survey reiterated the importance of agricultural research, extension, irrigation, mechanisation etc as the key drivers of growth of the sector. Hopefully, the funds allotted under different Government schemes, such as Rashtriya Krishi Vikas Yojana, the National Food Security Mission, the Mission for Integrated Development of Horticulture, the Soil Health Card Scheme, the Pradhan Mantri Krishi Sinchayee Yojana etc, are channeled to appropriately technologise our farming to deal with the extreme weather variations which have now become the norm. Many of these schemes have been folded into the new Krishionnati Yojana, and the funding has been curtailed, with the FM expressing hope that the States will put in the required money from the higher allocations they now have from the 14th Finance Commission formula. I hope that hope is not belied...

It’s only then that the Amrut Mahotsav of our independence will be sweet!      

A New Deal for Oilseeds

Despite being one of the largest producers of oilseeds in the world, India’s import dependence has doubled over the past few years owing to expanding consumption of edible oils and stagnating production of oilseeds. The country imported vegetable oils worth $10 billion in 2013-14 compared with $5 billion in 2007-08. If this growing demand has to be met without adding to the country’s current account deficit, oilseed production and domestic manufacture of edible oils have to be ramped up significantly.

Yields down

 

Farm yields of oilseeds such as groundnut, mustard, soyabean and sunflower are barely 50-70 per cent of global averages. Demand for edible oils is likely to increase from 18.3 million tonnes (mt) in 2013-14 to 25.7 mt by 2020-21, with imports expected to touch 15.8 mt rising 40 per cent from the current level of 11.2 mt. It is possible to address this alarming deficit through a set of policy interventions that will enable expansion of area under oilseeds cultivation, increase farm productivity, and improve value-addition within the country.

Lack of incentives

 

The farmer gets no incentive to invest in oilseeds, in competition with cheap imported oils in the absence of any import restrictions. The recent removal of export duty on palm products by Malaysia and Indonesia to reduce their inventory has resulted in a spike in imports and a resultant downward spiral of domestic prices, adding to the woes of the farmer. India’s import of vegetable oils is expected to touch a record 12.3 mt in the current year. Avoidable costs such as multiple handling due to APMC regulations, mandi cess, etc make domestic manufacture of edible oil an expensive proposition, limiting the scope for value-addition.

Strategies suggested

 

To meet this challenge, CII has recommended a three-pronged strategy:

 

One, raising farm productivity through a complete package of practices i.e. new technology, quality inputs and farm-extension services; and linking farmers effectively with markets. The Integrated Scheme for Oilseeds, Pulses, Oil Palm and Maize (ISOPOM) and National Mission on Oilseeds and Oil Palm (NMOOP) need to focus especially on increasing availability of high quality seed material to the producers. The private sector can focus on other inputs, and extension services.

 

Two, farmers need to be incentivised to undertake oilseed cultivation through higher price realisations. This can be done by raising import duties to bring prices on parity with domestic cost of cultivation. In due course, as the productivity improvement measures succeed, Indian prices also will be globally competitive. Based on recommendations from CII and other stakeholders, the Government has increased import duty on crude oil to 7.5 per cent from 2.5 per cent and that on refined edible oil to 15 per cent from 10 per cent.

 

Looking at the future price trends, there is room for further increase in rates, without hurting the consumer interests. In any case, the bound rates under WTO are also far higher than the current levels. The additional revenue generated can also be ploughed back into increasing oilseed productivity. There is also a need to lower transaction costs in the domestic value chain by lowering the mandi cess to a nominal 0.5 per cent. Reforming APMC Act to allow farmers to sell directly to manufacturers at their factories or warehouses will also fetch them better returns by reducing unwarranted multiple handling costs.

 

Three, increasing acreage of high oil content oilseeds is another key requirement. Cultivating more mustard in Punjab and palm in coastal areas can be explored. Between Punjab and Haryana, wheat is cultivated on some 6 million hectares. Part of this could be redirected towards mustard to meet the edible oil demand. This will also help the situation of depleting groundwater tables in these States. More wheat can be grown in the eastern parts of the country.

 

The area under oil-palm cultivation can also be increased to provide a rich source of edible oil and crude palm oil, which are widely imported. The Government has identified 19.30 lakh hectares as suitable for plantations. However, oil-palm is cultivated on only about 2 lakh hectares despite two decades of effort. Moreover, a major part of these plantations are still pre-mature and are yet to yield oil-palm. Declaring oil-palm as a plantation crop, along with policy support to allow better germplasm import can attract more investments into the sector.

 

The rich agro-climatic conditions of India offer an opportunity to produce a wide range of oilseeds globally competitively, when nurtured with the right policy environment. There is no reason why the country should remain an importer of edible oils for all times to come. 

 

Published in The Hindu Business Line at

http://www.thehindubusinessline.com/markets/commodities/a-new-deal-for-oilseeds/article6902484.ece