Budget 2022: Government should try to address farmers’ income and agri sustainability concerns

The Budget 2022 will have competing demands from various sectors given the crisis and uncertainty related to the pandemic that continues to impact lives and livelihoods. It will be a tightrope walk for the government in allocating resources for the agriculture and food sector that address multiple concerns related to growth, income, social welfare and safety net, and long-term sustainability of farming.

The Budget will be tabled close to elections in Punjab, Uttar Pradesh, Uttarakhand, Manipur and Goa, and political parties are already promising loan waivers, MSP for all crops, free electricity, among others, which is likely to influence the budget towards some populist announcements. Also, with year 2022 being the last year for achieving the target of doubling of farmers’ income by 2022-23, and the repeal of recent farm laws in November 2021, the government will have to reinforce the confidence of the farmers in its commitment towards making farming profitable for them, and the markets to deliver the economic gains.

Budget 2021 made an allocation of Rs 1,31,531 crore to the Ministry of Agriculture and Farmers’ Welfare (MoA&FW), a 14 percent increase over 2019-20. Of this, Rs 1,23,018 crore were allocated to DoA&FW, and Rs 8,514 crore to the Department of Agricultural Research and Education, 14 percent and 6 percent increase over 2019-20, respectively. There may not be any flagship reform-oriented announcements this time. However, the government will continue the momentum of policies and resource allocation it has been pursuing to boost growth as well as address the risks confronting the sector, and farmers in particular.

In the context of doubling farmers' income by 2022-23, it is expected that the Budget will emphasise on diversification towards high-value crops and integrating production systems including livestock and fisheries. The reason being that MSP aided cereals and pulses procurement and marketing have limited scope for enhancing farmers’ income. Diversifying into high-value crops such as fruits and vegetables, dairy, poultry, and fisheries will enable farmers to earn higher incomes provided there are opportunities for value addition, processing, and markets for the same.

Under the Production Linked Incentive (PLI) Scheme, with an outlay of Rs 10,900 crore for 2021-22 to 2026-27, the food processing sector will play a critical role in incentivising diversification, bringing back traditional cereals, and linking farmers to markets. It is anticipated that agricultural credit will be increased from Rs 16.5 lakh announced in the budget FY 2021 to around Rs 18.5 lakh in FY 2022. The Ministry of Co-operation should be given sufficient resources to scale up the cooperative structure across high-value commodities and create successful farmer-market linkages. The scope of the Pradhan Mantri Fasal Bima Yojana, which is already undergoing a revamp, will have to be stepped up to address the risks associated with farming and marketing of high-value commodities.

Agricultural diversification will also address the concerns related to the environmental and financial sustainability of intensive paddy and wheat cultivation in the northern states. Natural farming under the Paramparagat Krishi Vikas Yojana (with an allocation of Rs 450 crore in FY 2021) and other national programs on organic farming, as well as the National Project on Soil Health and Fertility can receive a boost in terms of scope and financial resources.  This will be in line with the pursuit of the government to move towards environmentally benign farming practices and reduce the dependence on agrochemicals. Diversification towards high-value crops and natural farming will have a favourable long-term impact on both the food and fertiliser subsidy burden.

FY 2020-21 witnessed a huge escalation in food and fertiliser subsidies compared to their budget allocations. Food and fertilizer subsidies amounted to Rs 2.43 lakh crore and Rs 79,630 crore, respectively in FY 2021-22. While it is desirable to rationalise these subsidies and push for direct income and benefit support, it may be difficult for the government to cut down these subsidies significantly right away. With the threat of the pandemic still looming, Pradhan Mantri Garib Kalyan Yojana extended up to March 2022 might continue for some more time until the situation stabilises. International prices of fertilisers are significantly higher than usual, and it is unlikely that the government will be able to rationalise fertiliser subsidies immediately.

Against the backdrop of opposition and agitation around the Farm Laws 2020 (now repealed), and the upcoming elections in Punjab and Uttar Pradesh, the government will be tactful in handling the sentiments of the farmers. Nonetheless, it will continue to strengthen agricultural markets by upgrading infrastructure and services. Through the Agriculture Infrastructure Fund (AIF), the government will continue to support infrastructure development including APMC and private markets, warehouses, cold chains, among others.

This will be important to reassure the farmers that APMC markets are an important part of the marketing network, and the reforms are targeted towards creating alternative marketing channels. Also, MSP will continue as price support for the existing 23 commodities, but whether it will be extended to all crops, and/or made legally binding, is not certain. The income concerns of the farmers should be addressed better by expanding the coverage of PM-Kisan to include the vulnerable groups within the farming community as well as significantly enhancing the allocation of Rs 6,000 per farmer family.

There are likely allocations and incentives for further boosting innovations and the start-up network, which will have a favourable impact on the agriculture and food sectors. As agriculture diversifies, there will be demand for improved supply chain management leveraging technology for higher resource use efficiency. The issue of environmental sustainability will also drive innovations that can reduce the resource footprint of agriculture without productivity losses, ensure safe food for consumption, and allow farmers to adopt such practices.

Farmer Producer Organisations (FPOs) will continue to be an important grassroots institution for mobilizing farmers to access alternative markets as well as linking them to the start-up ecosystem. The Ministry of Co-operation can play an enabling role in revitalizing farmer collectives that make technology and markets more accessible to the farmers. The Budget 2022 should be able to fuel the evolving ecosystem of farmer collectives, agritech start-ups, and agribusiness players with the government playing an enabling role.

This Budget should make the best use of the financial resources towards attracting greater investments in the agriculture and food sector that will catalyse the resilience of farming amidst concerns of climate change and environmental degradation; strengthen markets that allow farming to be more aligned to the actual demand, and expand direct benefit transfers to deliver the financial support directly to the farmers. Despite the repeal of farm laws, the government should pursue marketing reforms, which are in the interest of the farmers. Given the fiscal pressure, rationalising subsidies will be inevitable and critical to augment agri R&D.

The author is a Senior Research Fellow at Indian Council for Research on International Economic Relations, ICRIER. Views are personal.

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