Union Budget 2016-17: Moving the needle

The circumstances under which the Union Budget 2016–17 was presented were scarcely positive. The multitude of negative factors that prevailed included a tepid industrial growth, plummeting exports, weak global economic recovery and most importantly two successive years of poor monsoon. Steps to address rural distress were a crying need.

Most challenging task

Against this backdrop, Union Finance Minister Arun Jaitley came up with a budget with several pluses and a few minuses. At any rate, no Finance Minister can present a budget that pleases every constituent in society uniformly. The Minister deserves kudos for the way he has addressed the challenges facing the farming sector.

Fiscal consolidation act earns kudos for FM

The single act of not reneging on the fiscal consolidation agenda, the highpoint of the budget, should elevate India’s strength as an investment destination to foreign investors. It signals financial stability and good governance. It would catalyse the investment cycle which in its turn makes for several benefits. The revenue deficit at 2.5% in FY 16 is remarkable for the reason that it undershot the FRBM target of 2.8% implying that the fiscal consolidation was truly on the planned path. Combined with the fiscal deficit being set at 3.5% for fiscal 16-17, the budget signals two things: First, lower borrowings by the government; and secondly, it triggers hopes that the RBI would cut interest rate in the near term.

On road to progress

Roadblocks to road transportation and roadway construction have been addressed in the budget. This augurs well for employment and development. A total of 10,000 km of roads is to be approved in the next financial year with the highways sector being allotted Rs 55,000 crore. Combined with the bonds to be raised by NHAI and the allocation for the Prime Minister Gram Sadak Yojana (PMGSY) road construction has garnered Rs 97,000 crore.
Steps to give a fillip to the highway construction would include a law to fast-track dispute resolution in public private partnership projects and renegotiation of contracts to account for uncertainties without comprising on transparency. The revitalization of many a stranded project will in its turn catalyse growth, development and job creation.

Drought-proofing farm sector

A perusal of the fiscal policy clearly shows an overarching priority assigned to enhancing farmers’ incomes with other supporting policy prescriptions. The policy inter se seeks to enhance agriculture’s resilience to drought; to engender more efficient marketing of farm produce through electronic platform; to enable farmers to mitigate their risks through the new highly subsidized crop insurance scheme and to promote efficiency in use of inputs, especially water and fertilizer. The impetus provided to IRE i.e. irrigation, roadways and electrification in rural areas will in turn support agriculture through the operation of the virtuous cycle.

Initiatives that have been envisaged are as follows:

Decentralised procurement of crops by states and online procurement by Food Corporation of India is proposed.
To fix the problem of price asymmetry, a uniform Agricultural Marketing e-platform is to be rolled out in 585 selected wholesale markets nationwide. States would need to amend their Agricultural Produce Marketing Committee to join the e-platform. The e-platform has a game changing potential.

To fix the water crisis plaguing the agriculture sector, amalgamation of three projects, namely, the Pradhan Mantri Krishi Sinchai Yojana (PMKSY), the long-term irrigation fund under the National Bank for Agriculture and Rural Development and the proposed project for sustainable use of groundwater is mooted.

The green signal for 100 per cent Foreign Direct Investment in retail and marketing of fully India sourced food, fruit and vegetables will go to strengthen the value chain in the food industry.

The thrust of the myriad initiatives encapsulated above is to engender a doubling of the farmers’ incomes by 2022. Indeed the tectonic shift that the budget makes, is the movement of optics from concerns of the aspiring class to concerns of the perspiring class, from allocation of substantial resources for smart cities, bullet trains, etc., to sadak, pani and bijli.

It would appear that the cast for the turnaround in the fortunes of farmers is molded and that we are on the threshold of seeing fortune at the bottom of the pyramid. Given that agriculture accounts for just 17 per cent of the GDP despite accounting for 47 per cent of the workforce the belated attention to the sector cannot be faulted.

Opportunity to rationalise food, fertiliser sops lost

Technological innovation for transforming agriculture and containing the ill-effects of climate change necessitate investment in research by public and private institutions. Unfortunately, very little to promote agribiotech research finds mention in the budget. The budget has also been a disappointment in its lack of bold moves to rationalise food and fertilizer subsidies totaling more than Rs.1.2 lakh crore a year. Even so, a small step in the form of introducing direct benefit transfer for fertilizer subsidy on a pilot basis is a welcome move.

For an economy where more than fifty per cent of the farmers depend on the mercies of the rain god, the news about the transition to La Nina after two years of poor monsoon is propitious. Data on Indian agriculture indicates that agricultural output in La Nina years has averaged an 8 per cent growth. In addressing the multiple challenges to growth, Jaitley has done a commendable job by stressing on agriculture and infrastructure. The Finance Minister needs to be commended for moving the needle. Way to go even if it is slow.

Dr K Narendranath Menon

(The author is a senior faculty member at the Institute of Public Enterprise, Hyderabad)