Budget 2021: Amid farmer protests, what to expect for agriculture

The year 2020 has seen a lot of conversation about agriculture and farming. The sector forms an important part of the budget every year, with successive governments proposing new policies. All eyes will be on Finance Minister Nirmala Sitharaman on February 1 as she announces plans for economic revival from the wrath of Covid-19, including for the agricultural sector, amid farmer protests that continue unabated since November 26. 70 percent of India’s rural sector depends on agriculture for livelihood, and much more needs to be done to ease the excessive burden on the sector.  

In 2020, with the introduction of several policies and new laws—from the announcement of the Agri infra fund of Rs 1 lakh crore, to the implementation of the three farm laws—the need for increased agricultural investment has been apparent.  

The three ordinances introduced in the parliament in June 2020 that were passed in months and became laws—the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020; Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020; Essential Commodities (Amendment) Act, 2020—have led hundreds of thousands of people to protest by camping at several borders of New Delhi. A deadlock between the government and the farm protest leaders continues despite 11 inconclusive meetings.  

The laws, which are the government’s response to the much-needed action towards agriculture, seek to fundamentally alter agricultural practices, which farmers believe will severely affect their livelihood. According to protesting farmers, the laws will benefit only the private players and may strip them off Minimum Support Price (MSP) guaranteed to them under the APMC mandi system that runs the risk of being abolished in the long run. Farmers are sticking to their demand for the repeal of the three laws, while the government—after proposing a two-year delay in implementation of the law—now refuses to do so.

In the backdrop of these protests and the pandemic’s impact on the sector, this year’s union budget will be a crucial determinant of the future of India’s agriculture economy.  

Back in 2016, Prime Minister Narendra Modi had announced the government’s intent to double farmers’ income by 2022. But in July 2019, after introducing a few measures to achieve the goal, the government admitted in the parliament that at the current agriculture growth rate, that wouldn’t be possible. The Covid-19 pandemic worsened the situation, as labour costs and input prices and went up, and the unavailability of migrant labourers led to the increased costs for rabi crops. 

In 2018, the government launched the PM-Kisan scheme, which aims to boost farmer income through direct cash transfer of Rs 6,000 per year, and another pension scheme, PM Kisan Maan-Dhan Yojana, was launched in 2019 to benefit small and marginal farmers. In the 2020-21 budget, the focus for the agriculture sector was cash incentives and subsidies. PM-Kisan got 35 percent of the total Rs 2 lakh crore allocated towards the sector. 

What to expect from the union budget 2021-22?

According to Indian development economist and social scientist Jean Drèze, who was a key drafting member of the National Rural Employment Guarantee Act 2005 (NREGA), "The critical issue in the forthcoming Budget is to recognise that the economic crisis is far from over for working people. Many of them are in debt, and earning a fraction of what they used to earn before the lockdown." 

Drèze believes the finance minister should resist pressures to spend huge amounts of public money on concessions for the middle class or the corporate sector in the name of economic stimulus. "Economic support for poor people is a more effective way of reviving the economy," he explains, "It also facilitates the revival of the economy by fortifying consumer demand. It also helps to tilt the composition of GDP towards what used to be called 'wage goods', that is, goods and services that are consumed by working people." 

The government had made an additional allocation of Rs 1 lakh crore for an Agri Infrastructure Fund in the first tranche of the Atmanirbhar Bharat [self-reliant India] programme announced during the Covid-19 lockdown. It almost doubled the total allocation across central and centrally-sponsored schemes in agriculture to Rs 1,38,564 crore in 2019-20 from Rs 75,753 crore in the previous year’s revised Budget. 

Are more schemes like the PM-Kisan or Kisan Credit Card schemes likely to be introduced this year? Possibly. "An area where the government could intervene is to increase the allocation for priority sector lending to agriculture (which was pegged at Rs 15 lakh crore in the last budget). Also, the government may allow NBFCs and other financial institutions to lend to farmers under PSL," says Hemendra Mathur, Venture partner, Bharat Innovation Fund.  

In light of the uproar against the new farm laws, the focus during Budget 2021 is likely to be the concerns that the farmers have raised via the ongoing protests. "The government will reiterate its commitment to continue the MSP system in the Budget. It would also seek to increase the scope of the current form of MSP by guaranteeing some specified quantity for procurement under it," says Arun Singh, Global Chief Economist, Dun & Bradstreet. He adds that to revive the overall demand in the economy, the government will have to place considerable thrust to uplift the demand in the rural economy. 

On one hand, lakhs of farmers protesting the farm laws believe that the increased corporate intervention in agriculture as proposed under the farm laws will negatively impact their income, on the other hand, agritech players see the laws as the much-needed boost to their operations. The latter believe that if the laws are successfully implemented, there will be a substantial investment in agricultural infrastructure leading to an improved agriculture operation cycle. Anjani Mandal, CEO, Fortigo Logistics says, "These include the benefits to improved efficiency for reduced wastage of produce, as well as efficiencies in overall logistics costs on account of an integrated supply chain, that extends from produce to processing to consumption, which is a near given." As per industry experts, with a turnover of $204 million, currently, India's agritech sector is at under 1 percent of its market potential. 

The economic survey released ahead of the Budget 2021 announcement calls the new farm laws “a remedy, not a malady”, adding that it will cut down delays and post-harvest losses and “transfer the risk of market unpredictability from the farmer to the sponsor and also enable the farmer to access modern technology and better inputs”. 

It continues, “The three agricultural reform legislations are designed and intended primarily for the benefit of small and marginal farmers which constitute around 85 percent of the total number of farmers and are the biggest sufferer of the regressive APMC regulated market regime. The newly introduced farm laws herald a new era of market freedom which can go a long way in the improvement of farmer welfare in India.” 

Even outside of the farm laws, the investment in agricultural infrastructure is the need of the hour. "India is still lagging behind the western world in terms of agriculture mechanization and farm productivity. With investors looking at agritech as a viable investment option, the coming decade should see a boost in both the depth and breadth of such agri-based innovations," says Ranjith Mukundan, CEO and Co-founder of dairy tech firm Stellapps. 

While the budget is expected to provide subsidies and support, especially for small and marginal farmers, Mathur believes, "The government should gradually move from subsidy-based incentives to "Direct Benefit Transfer''. It will reduce the leakages in subsidy transfer, significantly reduce the administration cost of such subsidies, and will democratise the benefits to all segments of the farming community." 

Experts believe, the government may also look at creating a catalytic fund for seed funding of agritech startups. Incentivising agritech players with tax exemptions and rebates are likely to make it more viable for these companies to grow at scale. "Besides, the interest-rate subvention and financial support made available under the agri-infrastructure scheme, the government should further incentivise small and medium-scale players with tax exemption schemes to invest in rural cold-chain and agri-logistics infrastructure," says Amith Agarwal, Co-founder, and CEO, Agribazaar.  

Additionally, according to Mathur, digital penetration for agriculture, healthcare and education are likely to be a priority. "Apart from bringing investments in building physical and digital infrastructure, recognising deep-tech innovations and building a policy framework to scale them should be a priority too," adds Mathur. 

Robust last mile connectivity in the agri-infrastructure segment is essential for the growth of the overall sector. Adds Mathur, "The next decade belongs to Indian agriculture. We will see doubling of the food economy from $500 billion to $1 trillion by 2030 on the back of increased consumer demand, policy reforms and agritech and food tech innovations."