First, a word of caution for votaries of minimum support price (MSP) as the primary tool of making the agriculture sector work better. Total value of agricultural and allied output in India is about ₹56 tn, out of which share of food grain is only 17%. Out of this, GoI is able to procure through MSP only 6% of the total agri and allied output, though it has entailed an expenditure of ₹3.4 lakh cr in FY23. (Interestingly, GoI procures 92.8% and 73.6% of paddy produced by Punjab and Haryana, respectively. For wheat, these ratios are 72% and 56.6%, respectively.)
Livestock at 31% tops the list, followed by vegetables, fruit and spices at 26%. Fishing and forestry produce corner 7% policy share each. So, it’s a grave policy mistake to use MSP as the primary tool of price discovery in agriculture, not to mention as a political tool. Alternatively, the politics of 6% procurement clearly obfuscates a better deal for the 71%.
During the last 10 years, MSP of all 22 crops under its ambit has increased more than 100%, with GoI procuring mostly wheat and paddy through FCI and state agencies.
Thus, as policy change, there’s a clear need to have a direct consumer-farmer interface through development of more mandis across the states. States must take a lead in this by promoting urban haats – weekly village markets – that will help farmers to meet consumers directly.In India, Maharashtra and Bihar had allowed trade in all farm commodities, including livestock, outside the mandis, or regulated Agricultural Produce Market Committee (APMC) wholesale markets. This could help farmers to sell their produce to retailers directly at a better price. For this purpose, however, state governments should create the necessary infrastructure. This initiative could be taken up at a large scale in conjunction with the Centre. The upcoming budget could take the first step in this direction.Second, even with much talk about agricultural value chains (AVCs), it’s surprising that it’s not adequately defined for banks and financial institutions for them to engage as a partner. For example, to quote from the report of the working group on AVC finance that was submitted to GoI in December 2021: ‘There is need to bring the entire set of activities from input supplies to sowing/cultivation to harvesting to procurement to processing up to the point of retail sales under the regulatory definition of agri value chain by the RBI and developmental agencies, including the government/financial institutions in the interest of the comprehensiveness and integrity of the value chain and to enable seamless financing of the value chain under the category of agriculture.’Let the budget take a decisive step by accepting the recommendations of this report, and then RBI can announce the next steps. One important policy recommendation deserves special mention. Kisan Credit Card (KCC) loans, at present, are capped at ₹1.6 lakh without need of collateral security.
Given the rising input costs, and insurance and marketing efforts on post-production, the threshold can be increased, first for farmers with good credit history to incentivise them, and nudge others to follow suit.
Coupled with this, changing the dynamics of the KCC ‘review and renewal’ mechanism, with repayment of ‘interest alone’ being the criterion for renewal, could go a long way for helping small and marginal farmers. RBI, again, could issue the necessary instructions in this regard.
Beyond these changes, the budget can also unveil a livelihood credit card (LCC) scheme encompassing a multi-purpose loan covering a rural household’s entire gamut of activities aligned for ease of doing farming and allied activities. This could be a stealth weapon for improving rural consumption.
There is also a need of a comprehensive omnibus credit guarantee fund for the agriculture sector, just like the one for MSMEs, which can act as a credit accelerator and ensure coverage of all fresh agri loans, including AVC financing with a capital outlay of, say, ₹12,000 cr over 5 years boosting fresh agri credit multiple times.
In terms of employment generation, the budget could also unveil a comprehensive mineral strategy. A GoI report regarding critical minerals has been already prepared in 2023. It now needs to be acted upon. In principle, India is endowed with huge resources of many metallic and non-metallic minerals, currently producing as many as 95 minerals. However, progress of mining these minerals is not so encouraging. The 5-year CAGR (FY19-FY24) of most major minerals (in terms of quantity) is in single digits. Mining is a labour-intensive sector – with high employment elasticity (average daily employment of labour engaged in the sector was 4.8 lakh in FY19).
In this coming budget, the first of the new NDA government, let’s make a beginning to reprioritise on the agricultural policy front.