Union Budget

The Union Budget is marked by an overall compression of expenditures for agriculture

Print edition : February 26, 2021

Farmers transporting harvested paddy on the outskirts of Guwahati on June 2, 2020. The losses for farmers from the absence of markets and lower prices is estimated to run into thousands of crores of rupees. Photo: Anupam Nath/AP

The Thoppumpady fishing harbour in Kerala during the lockdown in August 2020. No allocation was made in the 2020-21 Budget for the Pradhan Mantri Matsya Sampada Yojana existing from 2019-20 with a promised investment of Rs.20,500 crore for fisheries activities and infrastructure. The PMMSY was re-announced as a new scheme in May 2020. Photo: H. Vibhu

The Budget shows no commitment to agricultural growth or farmers’ welfare. Against the background of the raging farmers’ agitation, this is only likely to widen the government’s trust deficit with farmers.

The Union Budget for 2021-22 was presented in an unprecedented context. On the one hand, the COVID-induced economic crisis affecting all sectors, including agriculture, has shown no sign of receding. On the other hand, the ill-advised passage of the three Farm Acts has unleashed a storm of protests by farmers. In this context, the Budget was widely expected to introduce new and concrete initiatives in agriculture. However, it was marked not just by a complete absence of any new initiative but also an overall compression of expenditures for agriculture.

The crisis in agriculture

India’s gross value added (GVA) in agriculture is estimated to have grown by 3.4 per cent in 2020-21, which was lower than the growth rate of 4 per cent in 2019-20. The Economic Survey for 2020-21 called this growth “robust”. However, it is highly unlikely that higher GVA growth translated into higher farmer incomes. There are many reasons to argue so.

The rabi season of 2020 and the kharif season of 2021 were marked by a severe and continued disruption of supply chains. Table 1 illustrates the extent of market arrivals for 22 selected crops between March and December of 2020 as a share of the corresponding market arrivals between March and December of 2019. The market arrivals for all the 22 crops were less in 2020 compared with 2019. Only in the case of six of the 22 crops were the market arrivals in 2020 above 75 per cent of the market arrivals in 2019. In 13 of the 22 crops, the market arrivals in 2020 were between 50 and 75 per cent of the market arrivals in 2019. In three out of the 22 crops, the market arrivals in 2020 were less than 50 per cent of the market arrivals in 2019. What do lower market arrivals imply?

It is obvious that the quantities of crops that did not arrive in the markets may have been sold informally, if not dumped, at lower prices than in the formal markets. It ought to be recalled that even in the formal markets, the average farm gate prices in 2020 were lower than the prices in 2019. This was a double whammy for farmers, particularly in States where procurement by the government is limited. The losses from absence of markets and lower prices are estimated to run into many thousands of crores of rupees for farmers. In addition, farmers were confronted with higher wages, unavailability of migrant workers, higher fertilizer prices and higher transportation costs. In other words, farm incomes were considerably stressed in 2020-21. In this context, the Budget was expected to expand support measures for agriculture and make new investments in order to stabilise prices and supply chains.

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Dairy, meat and poultry sectors were also significantly affected adversely. In dairy, the demand for milk fell by 20-25 per cent during the lockdown. Milk sales declined. Milk dairies announced milk holidays. Milk prices declined by half in many States. In meat, the demand and prices are estimated to have fallen by about 50 per cent over the lockdown period. Thousands of abattoirs and slaughterhouses closed down. In poultry, broiler birds piled up in farms, and growers were forced to keep feeding them with poultry feed purchased at high prices. To evade costs, growers across the country were forced to cull lakhs of birds. Eggs also started to pile up in poultry farms. The All India Poultry Breeders Association has estimated the total loss for the poultry industry at Rs.25,000 crore. Growers and processors in these three sub-sectors expected rescue or revival packages in the Budget.

However, agriculture and allied sectors were a non-entity as far as the Budget for 2021-22 was concerned.

The fiscal stance

According to the Budget documents, the fiscal deficit for 2020-21 increased from the budgeted 3.5 per cent to 9.5 per cent. This rise in deficit amounts to about Rs.10.5 lakh crore. The Finance Minister would have us believe that this was primarily because of her government’s commitment to spend during the pandemic. However, additional spending in 2020-21 was only about Rs.3.5 lakh crore. The rest of the rise in the fiscal deficit was owing to two important factors. First, there was a sharp fall in the revenues. The total revenue receipts fell by Rs.4.6 lakh crore in 2020-21.

Secondly, the government decided to end the fudging of budget numbers with respect to financing food and fertilizer subsidies. For many years, the Food Corporation of India (FCI) was not paid for costs it incurred on procurement, storage and distribution of foodgrains. Instead, the FCI was asked to borrow from the National Small Savings Fund (NSSF). The FCI’s overall debt amounted to Rs.3.7 lakh crore in 2020-21. This arrangement suited the government, as loans of the FCI were not reflected in the Budget as higher fiscal deficits. The payment of fertilizer subsidies to fertilizer companies was also withheld for years. Such dues amounted to about Rs.65,000 crore in 2020-21. Thankfully, the Budget announced a payment of Rs.3.7 lakh crore to the FCI and fertilizer companies, and brought these expenditures into the Budget.

The fall in receipts and the end to fudging accounted for roughly two-third of the rise of the fiscal deficit in 2020-21. But there is more. If we consider the rise in spending, loss of receipts and the end to fudging alone, the fiscal deficit would have risen to about 11.8 per cent. As some commentaries indicate, a decision was taken to limit the fiscal deficit to a single digit number. To achieve this, the Budget also cut expenditures across the board.

Compression of spending in 2020-21

Overall spending in agriculture in 2020-21 was cut by 13 per cent, from Rs.1.34 lakh crore (BE) to 1.17 lakh crore (RE). In the PM-Kisan scheme, the flagship scheme in agriculture, the spending was cut from Rs.75,000 crore to Rs.65,000 crore.

Many other schemes in agriculture too faced cuts in spending: by 50 per cent in the Market Intervention Scheme and Price Support Scheme (MIS-PSS); by 50 per cent in the scheme to form and promote Farmer Producer Organisations (FPOs); by 35 per cent in the Pradhan Mantri Krishi Sinchai Yojana; by 31 per cent in the Rashtriya Krishi Vikas Yojana (RKVY); by 30 per cent in the National Mission on Horticulture; by 11 per cent in the National Food Security Mission; and by 7 per cent in agricultural research and education. The overall cut in all the Centrally Sponsored Schemes (CSS) in agriculture was from Rs.17,320 crore to Rs.13,037 crore, or by 25 per cent.

The atmanirbhar package

In 2020-21, the additional spending did not exceed Rs.3.5 lakh crore. But then, the government had announced an atmanirbhar economic revival package of Rs.20 lakh crore in May 2020. It turns out that direct spending by the government constituted only 17.5 per cent of the size of the atmanirbhar package. The remaining 82.5 per cent of the package was to be implemented through banks and financial institutions as loans and guarantees, with no fiscal outgo.

Where did agriculture stand in this package? Budget documents show that most announcements made as part of the atmanirbhar package were hardly new; they were rehashed versions of schemes already presented in earlier Budgets.

Agriculture in the atmanirbhar package

To begin with, the government announced a Rs.1 lakh crore financing facility for funding aggregators and FPOs. This scheme was to be implemented through the National Bank for Agriculture and Rural Development (NABARD). NABARD was to raise Rs.1 lakh crore from the market as loans, and give to banks and cooperatives to re-lend as loans to aggregators and FPOs. Expenditure of the government was zero. Reports also indicate that of the Rs.1 lakh crore, loans worth only Rs.2,991 crore received in-principle sanction as on January 2021. There was another scheme to form and promote FPOs, with an allocation of Rs.500 crore in 2020-21. However, revised estimates show that only Rs.250 crore is likely to be spent on this head in 2020-21. In other words, there was a cut by Rs.250 crore.

Secondly, the government announced that the scheme “Operation Greens” would be expanded with an additional fund of Rs.500 crore and extended from tomatoes, onions and potatoes to all fruits and vegetables. Operation Greens is one component of a larger scheme called the Pradhan Mantri Kisan Sampada Yojana (PMKSY). But the spending under the PMKSY declined by Rs.331 crore in 2020-21, from Rs.1,081 crore to Rs.750 crore. Thus, there probably was no additional expenditure on Operation Greens.

Thirdly, the government announced a Rs.10,000 crore scheme for micro food enterprise clusters. Here, a new CSS called Prime Minister Formalisation of Micro Food Processing Enterprises Scheme (PM-FME) was introduced in 2020-21. The expenditure in 2020-21 is shown as Rs.400 crore. The already operational PMKSY was very similar to this new initiative. Apart from Operation Greens, it financed food parks, agro-processing clusters and integrated cold chains. But as we saw, the expenditure under the PMKSY was cut by Rs.331 crore in 2020-21. It would appear that what was added to PM-FME was taken away from the PMKSY. The net rise in expenditure, then, would be just Rs.69 crore.

Fourthly, a “new” scheme called the Pradhan Mantri Matsya Sampada Yojana (PMMSY) was “launched” with an outlay of Rs.20,000 crore. The PMMSY too was an existing scheme from 2019-20, with a promised investment of Rs.20,500 crore for fisheries activities and infrastructure. On January 21, 2020, the Expenditure Finance Committee (EFC) approved the PMMSY with a Central share of Rs.9,407 crore, State share of Rs.4,880 crore and a beneficiary share of Rs.5,763 crore. It was to be implemented over five years. Despite the EFC approval, no allocation was provided for the PMMSY in the 2020-21 Budget. This PMMSY was re-announced as a new scheme in May 2020.

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Under the PMMSY, Rs.700 crore was spent in 2020-21. However, even this appears to be illusory. In the 2020-21 Budget, Rs.560 crore was allocated for “Integrated Development and Management of Fisheries”, which also aimed to develop fisheries infrastructure. This scheme shows zero expenditure in 2020-21. In all probability, Rs.560 crore was taken away from this scheme and spent under PMMSY. If so, the net additional expenditure was only Rs.140 crore.

Fifthly, a scheme titled National Animal Disease Control Programme (NADCP) was announced with an outlay of Rs.13,343 crore. This scheme was officially launched by the Prime Minister on September 11, 2019, with an outlay of Rs.12,652 crore over five years. The atmanirbhar package included the NADCP as if it was a new scheme. The objectives were the same: vaccinating 100 per cent of cattle, buffaloes, sheep, goats and pigs against Foot and Mouth Disease (FMD) and brucellosis. An amount of Rs.1,300 crore was already allocated for the NADCP in 2020-21. However, only Rs.858 crore was spent. In other words, there was a cut by Rs.442 crore over the budgeted figures.

Sixthly, the government announced that it would “set up” an Animal Husbandry Infrastructure Development Fund (AHIDF) with Rs.15,000 crore outlay over three years. Again, this was an existing scheme in the 2020-21 Budget along with another similar scheme called the Dairy Infrastructure Development Fund (DIDF). It was to be implemented through NABARD, as an interest subvention programme to finance processing and chilling infrastructure and milk adulteration testing equipment.

The allocation for the AHIDF in 2020-21 was Rs.127 crore. However, only Rs.77 crore was spent, which was a cut by Rs.50 crore. The allocation for the DIDF in 2020-21 was Rs.60 crore, but the actual spending was only Rs.10 crore.

Seventhly, a scheme was announced to promote herbal and medicinal plans with an outlay of Rs.4,000 crore over two years. The Ministry of AYUSH (Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy) already had multiple schemes to promote large-scale farming of medicinal plants through the National Medicinal Plants Board. But the Board’s expenditure was cut from Rs.60 crore to Rs.50 crore in 2020-21. The already operational National AYUSH Mission also supports herbal industry and export market-driven cultivation of medicinal plants. Here too, the allocation for 2020-21 was Rs.705 crore, but the actual spending was just Rs.400 crore.

Finally, the government announced Rs.500 crore for beekeeping. Here also, there was already a CSS called the “National Beekeeping and Honey Mission” (NBHM), included under the National Mission on Horticulture (NMH). But, as already mentioned, the overall spending for NMH was cut from the budgeted Rs.2,300 crore to just Rs.1,610 crore in 2020-21. The additional expenditure incurred in 2020-21, then, is most probably zero.

In sum, even as overall spending in agriculture declined, the direct additional spending on agriculture as part of the atmanirbhar package was not more than Rs.300-400 crore. This was a pittance, given the extraordinary challenges faced by the agricultural sector during the pandemic.

Dim prospects for 2021-22

The Budget claims that fiscal deficit will be brought down from 9.5 per cent to 6.8 per cent between 2020-21 and 2021-22, and then to 3 per cent by 2024-25. This path of fiscal consolidation implies that an amount close to 2.7 per cent of the GDP will have be cut in 2021-22 from the expenditures of 2020-21 unless revenues rise substantially. As revenues may not rise substantially, 2021-22 is likely to be a year of severe contraction of public spending.

Given this prospect of contraction, it is likely that the government will not pay the FCI its full dues in 2021-22 as well. The FCI’s allocation in 2021-22 is Rs.2.02 lakh crore. This is about Rs.85,000 crore less than the actual requirement. In all probability, the FCI would be asked to borrow this Rs.85,000 crore. Thus, fudging of Budget numbers would continue into 2021-22, though on a smaller scale. Similar is the case with fertilizer subsidies. Here, arrears are set to return in 2021-22, as the allocation for urea subsidy and nutrient-based subsidy have declined from Rs.1.33 lakh crore in 2020-21 to Rs.79,529 crore in 2021-22.

As part of the same plan to contract expenditures, the allocation to PM-Kisan has been cut from Rs.75,000 crore in 2020-21 to Rs.65,000 crore in 2021-22. The PM-Kisan scheme was to originally cover 14.5 crore farmers, but it does not cover more than 11 crore farmers. The spending has been cut when the challenge was to expand the coverage of the scheme. Similarly, it is likely that the Central government would end open-ended procurement of rice and wheat in 2021-22 to ensure reduction in food subsidy. Minimum Support Prices (MSP) also are unlikely to see any major rise next year.

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For most other schemes in agriculture, budgeted allocation is shown to rise in 2021-22. The overall spending in agriculture is also pegged at 1.23 lakh crore, up from 1.16 lakh crore in 2020-21. However, given the objective of fiscal consolidation, these targets are hardly likely to be fulfilled. In other words, expenditures on schemes in agriculture are likely to further fall in 2021-22, as in 2020-21.

The Budget has created an Agriculture Infrastructure Fund (AIF) of Rs.30,000 crore by charging a price-neutral cess on few items. Price neutrality will be ensured by a reduction of customs duties, which is part of the shareable pool of resources. However, this implies a fall in the Central transfers to States, which in turn implies a fall in spending at the State-level. It remains to be seen how this incongruity would play out in 2021-22. The Rural Infrastructure Development Fund (RIDF) has been given an additional Rs.10,000 crore and the Micro-Irrigation Fund an additional Rs.5,000 crore. But both these are loan-based schemes, and have zero fiscal outgo.

In sum, the Budget for 2021-22 shows no commitment to agricultural growth or farmers’ welfare. In the background of the raging farmers’ agitation, this is only likely to widen the government’s trust deficit with farmers. Indeed, it appears that the government has decided to use the Budget to penalise the country’s farmers.

R. Ramakumar teaches at the Tata Institute of Social Sciences, Mumbai.