Doubling Farmers’ Income – Are the Claims True?

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By Lekshmi R Nair*

Agriculture provides the principal means of livelihood to around 58 per cent of rural households and contributes to 18 per cent of the Gross Domestic Product (GDP) in India. However, agricultural production has been stagnant in the country for the past several years, resulting in significant decline in farmers’ income. Economic Survey 2016–17 shows that there have been significant job losses and social disruptions in cash-intensive sectors like agriculture after demonetisation. The budget speech stated that the government’s goal is to double farmers’ income in five years. Accordingly, there is high allocation for agriculture in the 2017-18 budget.  While this is an appreciable move, how the budget allocation will result in doubling the income of farmers is not clear.

Expenditure

Table 1: Expenditure on Agriculture and Allied Activities (in Rs crore)

2015–16 Actuals 2016–17 Budget Estimates 2016–17 Revised Estimates 2017–18 Budget Estimates
Total 202399.1 189279.8 198018 209768.6
Revenue Expenditure 201982.2 188562 196553 206092.3
Capital Expenditure 416.88 717.77 1465.02 3676.34

Source: Budget Documents 2017

The total expenditure on agriculture and allied activities in 2015–16 was Rs 2.02 lakh crore. The budgeted amount for 2017–18 has increased to Rs 2.09 lakh crore with a growth rate of 3.6 per cent. While comparing the budgeted amount for 2017-18 with the Revised Estimates (RE) of 2016–17, it has increased at the rate of 5.9 per cent.

Revenue and Capital Expenditures

For most subcomponents within agriculture, except animal husbandry, dairy development, food storage and warehousing, the rise in revenue expenditure budgeted is minimal, compared to the RE of 2016–17 and the actual expenditure of 2015–16. The rise in budgeted allocation to agriculture for 2017–18 is thus mainly due to the rise in capital expenditure budgeted. The capital expenditure budgeted for 2017–18 increased to Rs 3676.34 crore from the actual expenditure figure of Rs 416.88 crore in 2015–16 and from the RE of Rs 1465.02 crore in 2016–17.

If we examine the quality of rise in capital expenditure, we can see that 97.1 per cent of the allocation is focused on ‘Investments in Agricultural Financial Institutions’. The budget speech points out that this expenditure will mainly be for supporting the National Bank for Agriculture and Rural Development (NABARD) for the computerisation and integration of 63000 functional Primary Agricultural Credit Societies (PACS), which is not capital expenditure in effect. Though identifying PACS as a main source of cheap rural agricultural credit to farmers is commendable, it needs to be ensured that the funds allocated to PACS are used mainly for agricultural purposes. According to the 2014–15 data for the purpose-wise loans issued from the National Federation of State Cooperative Banks Ltd, which is the latest data available, only 48 per cent is used for agricultural purposes, while 39 per cent is used for productive purposes other than agriculture and 13 percent is used for non-productive purposes.

Allocation for Agricultural Inputs

Irrigation and agricultural credit are recognised as key inputs for improving the productivity of agriculture. There is a significant rise in the amounts allotted for irrigation and flood control, both in the revenue and capital accounts. Augmentation by 100 per cent for Long Term Irrigation Fund  already set up in NABARD and Dedicated Micro Irrigation Fund in NABARD to achieve ‘per drop more crop’ with an initial corpus of ` 5,000 crores has been announced. These are welcome moves. The Working Group set up by the Government of India (2012) on major and medium irrigation for the 12th Five Year Plan has identified, however, a huge gap between the irrigation potential created and irrigation potential utilised in the country. Hence, it needs to be ensured that the irrigation projects produce tangible results in stipulated time.

The allocation for agricultural credit is raised from Rs 9 lakh crore last year to Rs 10 lakh crore. The half-year data of 2016–17 shows that Rs 7.6 lakh crore out of Rs 9 lakh crore has already been achieved. Considering the previous year’s data, the lending for current year might reach Rs 9.5 lakh crore. Thus, the present allocation only follows the previous year’s trend line, as shown in Figure 1.

Figure 1: Agricultural Credit

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Source: Economic Survey 2016–17

Allocations to Projects and Schemes

The allocation for the Pradhan Mantri Fasal Bhima Yojana, a crop insurance scheme is increased from Rs 5500 crore to Rs 9000 crore. Following extensive crop damage due to drought, the actual expenditure on this scheme was Rs 13240 crore in 2016–17, much higher than the allotted amount in 2017–18. The Indian Council of Food and Agriculture’s 2016 report shows that 85 per cent of the small farmers do not benefit from crop insurance schemes, due to corruption and fraudulent practices, and mostly, large farmers reap the benefits of such schemes. Hence, how far the small farmers will benefit from the rise in allocation remains a matter of concern.

e-National Agriculture Market (eNAM), launched in April, aims to integrate markets across the country to provide standard prices. Finance Minister Arun Jaitley set the target for the implementation of eNAM at 585 markets. The eNAM website claims that 585 markets have deployed this system, while only 250 markets are live. This means that this proposal is dated.

Conclusion

‘India Spend’ calculates that an Indian farmer’s income effectively rose, after adjusting for rising costs, by only five per cent per year between 2003 and 2013. Hence, to double the income growth rate in nominal terms in the next five years, the annual income growth rate has to be increased by 15 per cent. Economic experts claim that in order to increase the earnings of farmers, there needs to be a growth rate of 12 to 14 per cent in agriculture per annum, while the agricultural growth rate is just 1.2 per cent in India at present. One main barrier for improving agricultural productivity and increasing the earnings of farmers is the lack of adoption of innovative technologies that enable higher production at lower input cost, as shown by a recent study of the National Academy of Agricultural Sciences. Doubling the farmers’ income also depends on the effective utilisation of the amounts allocated in the budget. These factors are subject to several policy changes than just financial allocation in the budget. Since agriculture is a state subject, state governments are mainly responsible for these policy changes.

Lekshmi R Nair is the Centre Manager at CPPR- Centre for Comparative Studies. Views expressed by the author is personal and does not reflect that of CPPR.

This article was first published in The Dialogue, Click here to read: Doubling Farmers’ Income – Are the Claims True?

Dr. Lekshmi Nair
PhD in Economics, M. Phil in Applied Economics from JNU/CDS Trivandrum and Masters in Statistics
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Dr. Lekshmi Nair

Dr. Lekshmi Nair

PhD in Economics, M. Phil in Applied Economics from JNU/CDS Trivandrum and Masters in Statistics

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