Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

Bringing transparency in Budget in agri-food sector

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Union Budget

Mains level : Paper 3- Transparency in the Budget, bias towards subsidies and neglect of RD in allocation to agriculture sector

The article analyses the Union Budget and highlights the emphasis on transparency by showing the borrowing of the FCI and arrears of the fertiliser companies in the Budget.

Transparency in food subsidy and arrears of fertiliser industry

  • Year after year, a substantial part of the food subsidy was being put under the carpet by increasing the Food Corporation of India’s (FCI) borrowings.
  • The amount had crossed Rs 3 lakh crore.
  • The revised estimate (RE) for FY 2020-21 is 3.66 times the budgeted figure, indicating that almost all borrowings of FCI have been cleared.
  • This is indeed a historic step towards introducing transparency in the Union Budget.
  • The Budget also cleared off the fertiliser industry’s arrears.
  • Against the budgeted figure of Rs 71,309 crore for FY 2020-21, the revised estimate is Rs 1,33,947 crore, an increase of Rs 62,638 crore.

Neglect of R&D

  • From a policy perspective one must point to the huge bias towards subsidies as compared to investments, especially research and development.
  • The allocation for agri-R&D is a meagre Rs 8,514 crore in FY 2021-22 against a RE of Rs 7,762 crore in FY 2020-21.
  • The marginal returns in terms of agri-growth from expenditures on agri-R&D are almost five to 10 times higher than through subsidies.
  • India spends not even half of what a private global company like Bayer spends on agri-R&D — almost Rs 20,000 crore every year.
  • This is why growth momentum in agriculture remains subdued and India keeps spending on freebies with sub-optimal results.

Subsidies needs a rethink

1) Food subsidy

  • The FCI’s economic cost of rice is Rs 37/kg and of wheat about Rs 27/kg.
  • This economic cost is roughly 40 per cent higher than the procurement price.
  • This calls for giving the public distribution system’s beneficiaries the choice of direct cash transfers.
  • This could create a more diversified demand which, in turn, will support diversification in agriculture.
  • Further, in food subsidy, it is time to revise the issue prices for beneficiaries except for the antyodaya (most marginal) category.
  • Percentage of population covered by the food subsidy should be brought down to 40 per cent.

2) Fertiliser subsidy

  • Massive subsidisation of urea, to the tune of almost 70 per cent of its cost, is leading to its sub-optimal usage.
  • It is time to move towards direct cash transfers to farmers based on a per hectare basis and free up prices of fertilisers.
  • This will help reduce leakages and imbalance in NPK (nitrogen, phosphorus, potassium) usage and lead to efficiency, equity and environmental sustainability.

Consider the question “If one looks at India’s Union Budget, it is easy to notice huge bias towards subsidies and neglect of the research and development in agriculure in the allocation for agriculture sector. What are the implications of such bias?” 

Conclusion

Overall, the expenditure on agri-R&D needs to be doubled or even tripled in next three years, if growth in agriculture has to provide food security at a national level and subsidies on food and fertilisers need to be contained. At the same time, food subsidy and fertiliser subsidy needs rationalisation.

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