Opinion: Agri gets meagre support

Since the agricultural sector saw its worst performance during 2023-24, Sitharaman should have been generous

By Dr Kedar Vishnu

The growth rate of agriculture shrank sharply to 1.4% in 2023-24 from 4.7% in 2022-23 (Economic Survey 2023-24). Over five years, the sector grew at an average annual rate of 4.18%; the lowest growth rate was in 2023-24. The principal cause of this loss was a reduction in foodgrain output due to inadequate and delayed monsoons. We had anticipated that the Finance Minister would show greater generosity to this sector in the union Budget 2024-25. An attempt is made to analyse the impact of the Budget on the agricultural sector.

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The overall allocation has increased to Rs 48.21 lakh crore in union Budget 2024-25 (BE) from Rs 44.90 lakh crore in 2023-24 (RE), up 7.35%. A 16.93% increase in capital expenditure in this Budget over last year’s (RE) reflects the strong commitment of the union government to boost economic growth through infrastructure development.

However, the allocation for the agriculture sector has only increased to Rs 1.325 lakh crore from Rs 1.267 lakh crore, up 4.58% compared with 2023-24 (RE). A sum of Rs 1.52 lakh crore has been allocated for the agriculture and allied sectors in 2024-25. The share of capital expenditure is just at 0.08%, and the remaining, almost 99.9%, is allocated for the revenue account. On the other hand, the Finance Minister has focused on raising the capital expenditure share in the overall sectors — from 22.23% in 2023-24 to 23.05% in 2024-25 (RE) — but failed to have a similar strategy for the agriculture sector.

Interestingly, in 2022-23, the share of the total Budget that went to the agricultural sector was just 3.36%; in 2023-24, it fell sharply to 2.82%; and in 2024-25 (Interim Budget), it decreased even more to 2.67%; however, it slightly increased to 2.75% in 2024-25 (Budget at a Glance 2024-2025).

Changes in Priorities

During the Budget presentation, the Finance Minister placed a strong emphasis on increasing allocation for agricultural research and development to increase productivity and growth in the rural economy. However, while allocating the funds, the government gave the least priority to the Department of Agricultural Research and Education and only allotted Rs 0.099 lakh crore, just 0.65% more than the previous union Budget 2023-24 (RE).

The government is planning to release new 109 high-yielding and climate-resilient varieties of 32 field and horticulture crops for cultivation by farmers. The union Cabinet raised the MSP for 14 Kharif crops for the 2024-25 season (announcement June 2024), which will have a major positive impact on the agriculture sector. Paddy, the most extensively grown crop, has seen a noteworthy 5.35% increase in its MSP. The increase ranged from 1.4% to 12.5%. That is the primary reason for increasing the allocation for PM Annadata Aay Sanrakshan Yojana. Additionally, emphasis has been placed on boosting natural farming (target of 1 crore farmers in two years), expanding farmer marketing opportunities and creating jobs in the rural economy.

Sector-wise Allocation

When examining the funding allotted to the Department of Agriculture and Farmer’s Welfare for its various programmes, it is evident that the Pradhan Mantri Annadata Aay Sanrakshan Yojana received a larger increase in allocation — Rs 64,38 crore from Rs 22,00 crore last year. As a result, farmers would benefit from receiving more MSP, especially for oilseed crops.

However, this Budget did not differ significantly from the Interim Budget in any other major agricultural schemes. According to our analysis, since the agricultural sector witnessed its worst performance during 2023-24, the government should have gone for higher allocation.
Of all the schemes, the MGNERGS received the most — Rs 86,000 crore. The PM Kisan scheme followed with Rs 60,000 crore. It’s interesting to note that the allocation in the current Budget remains unchanged from the previous year.

The Modified Interest Subvention Scheme (MISS) allocation has increased significantly to Rs 22,600 crore (up 22.2%). The Rashtriya Krishi Vikas Yojana (RKVY) follows with Rs 7,553 crore (up 22.8%), the Krishonnati Yojana – Rs 7,447 crore (16.8% increase) and the FPO (Farmers Producer Organizations) has been allotted Rs 582 crore (29.3% increase). However, the increased funding to these schemes will only slightly assist farmers in obtaining short-term agricultural loans for crop husbandry, pre- and post-harvest infrastructure development and scientific agricultural advancement.

Among all the schemes, the Crop Insurance Scheme has seen its most significant decline by Rs 400 crore (2.7% reduction in the Budget 2024-25), affecting farmers since it would increase their exposure to production risk.

What is Missing

The increase in the MSP for 14 crops in the range from 1.4% to 12.5% is in the right direction. However, when the cost of cultivation and production has increased significantly — more than doubled — farmers will not be able to increase their income to a large extent and will also be limited to a few crops only. The government should have considered the recommendation of Prof Swaminathan’s Committee in 2006 for increasing the MSP.

The government should have given higher priority to the following in the union Budget 2024-25:

• To begin with, a significant increase in funding for smart and climate-resilient agriculture was necessary to lessen the effects of climate change

• Second, to boost productivity and product quality, the government should have given greater priority to supporting initiatives that encourage the use of geographic information systems (GIS) and artificial intelligence. Although the Budget stresses providing income transfers and supporting welfare-oriented programmes in the near term, it could have focused on the production side too.

• Third, the government should have placed greater emphasis on establishing links between supermarkets and small marginal farmers and the global value chain. Robust institutional mechanisms are necessary to encourage greater contract farming. Even so, while selling fruits and vegetables to the contracting firm, farmers incur huge transaction costs due to the asymmetric information about the price, product quality and reliability of the contracting farm. Further, farmers also suffer due to the opportunistic behaviour of the contracting firm.