A green budget for a resurgent rural India

This visionary and reform-oriented Green Budget for 2018-19 was expected to be a populist budget in view of the looming elections in 2019. While the middle-class may feel let down as their personal income taxes have not been considerably reduced, the farmer and his family has reason to cheer. His crops will have an MSP which is 150 per cent of the market. This move alone will energise the farmer to improve productivity and production by all means possible. But where are the warehouses and cold storages to store this bountiful harvest? Maybe the next Budget will take this up.

Rural infrastructure, roads, bridges, markets all are being upgraded and will enable better market availability.  With agri-processing initiatives by farmers through Farmer Producer Organisations (FPOs) and agro-processing of crops, a huge number of rural industries and service sector initiatives can take off to create new rural jobs.

The Long Term Irrigation Fund in NABARD, the merger of three general insurance companies and other institutional reforms to encourage infrastructure development in rural areas, will be part of the structural reforms which are necessary if an “Operation Green” on the lines of “Operation Flood” is to be implemented. Enhancing agri-credit flow to Rs. 11 lakh crore is another step in the right direction, as is the assistance to organics, aromatics and medicinal plants. With the initiatives in tribal areas for Eklavya schools, funds for SC/ST, enormous benefits for the health sector and numerous medical colleges, digital advances, sanitation infrastructure and health infrastructure, the rural women and children will surely benefit.  Because of these initiatives, this Budget can be seen as rural-oriented and yet is a Budget for the entire country. It is visionary because it does not divide and seeks to unify rural India’s progress with Urban India’s growth potential.

The Long Term Irrigation Fund in NABARD, the merger of three general insurance companies and other institutional reforms to encourage infrastructure development in rural areas, will be part of the structural reforms which are necessary if an “Operation Green” on the lines of “Operation Flood” is to be implemented. Enhancing agri-credit flow to Rs. 11 lakh crore is another step in the right direction, as is the assistance to organics, aromatics and medicinal plants.

The creation of 22,000 rural markets by upgrading existing haats is a great initiative and coupled with the creation of excellent roads, lays the basis for creating a viable rural market-based economy. However, care must be taken to remove unnecessary players in the value chain so as to reduce costs. A good and progressive supply chain tries out innovations in processes, technologies and systems so as to reduce costs and continue to be competitive in the market. The push given to the MSME sector and enhancement of Mudra loans will help in creating more rural jobs.

The expected strengthening of the Rural Infrastructure Development Fund (RIDF) and more innovative and inclusional efforts by NABARD (along with creation of the Long Term Irrigation Fund) are excellent initiatives. Also, the two Funds for creating infrastructure for the Animal Husbandry and Fisheries sectors are again welcome. The 1290 Cr. National Bamboo Fund will help the North Eastern Regions and tribal regions, and are essential for furthering the cause of rural prosperity.  

If the rural livelihoods from FPOs, Self Help Groups (SHGs), Agricultural Produce Market Committees (APMCs) and access to Kisan Credit Card (KCC) for animal husbandary households and fishers materialise, the entire rural economy can benefit.

To expand rural financial services, financial institutions could consider financing stakeholders, who will on-lend to small farmers. The use of trade credit, warehouse receipts, Joint Liability Groups, SGs, FPOs and contract farming may be experimented with by the financing banks. 

Let us recall that there was no national agricultural policy till 1998, when the NDA government prepared one but this was buried by the UPA government in 2004 and since then there is no talk of any agricultural policy. The sad truth is that there is no interest in creating one and the only discussions are about farm loan waivers during elections! Reforms in the agriculture sector are perfunctorily discussed and forgotten till the next agrarian crisis erupts.  Now is the time for a serious attempt at creating a National Agriculture Plan which will lay down the foundations for a stable and inclusive rural economy. This Budget signals the contours of such a possible New Plan and deserves to be followed up sincerely.    

Beyond Jan Dhan Accounts

To expand rural financial services, financial institutions could consider financing stakeholders, who will on-lend to small farmers. The use of trade credit, warehouse receipts, Joint Liability Groups, SGs, FPOs and contract farming may be experimented with by the financing banks. Promotion of credit in an on-lending mode will reduce banks’ credit risk and will result in faster services, including financing of smallholder farmers. As a result of this association, farmers will also get access to a wider range of services, including savings and investment credit. The 2018-19 Budget helps FPOs and gives 100 per cent tax-exemptions for five years, and is a boon for agri-processing FPOs. But there are no new benefits for the existing cooperatives, and hence this hampers financial inclusion by cooperative banks.

With cost structures more appropriate to smallholder farmers, small-scale warehouses will have to be designed and financed. It will allow the farmers to hold on to their stocks when the markets are flooded with stock arrivals, store in cold storages/godowns and sell when market prices are more advantageous. But this Budget does not provide any benefit for creation of small warehouses which meet the smallholder farmer’s needs.

How to increase the net income of farmers is the ultimate test of the rural economy. To achieve double-digit GDP growth, agricultural GDP must be enhanced to five per cent soon. That is the challenge to India if we aspire to be a world power. Without enriching our farmers, India will fail.

 (The writer is, former Managing Director, NABARD and Director of India Post Payments Bank)