Union Budget 2017-18: Implications for Agriculture and Rural India

One of the key constituencies that the Union Budget has aggressively tried to address is the rural population, especially the farmers. In the previous budget, the government had already committed to double farm incomes by 2022. Additionally, the demonetization drive had caused hardship during the Rabi sowing season and that pain too had to be alleviated. But above all, after a fairly long gap, agriculture had shown green-shoots of recovery by growing 300 bps higher at over 4.1%. The time to consolidate and build on these gains was now…

What the budget means for Agricultural and Rural India…

  • The FM has announced a record allocation of Rs.10,00,000 crore to rural credit during the fiscal year 2017-18. Additionally, the 60-day interest waiver announced by Prime Minister, Mr. Narendra Modi, in his New Year speech was also given budgetary sanction. From the point of view of ensuring crop security, the crop insurance scheme coverage will be increased to 40% in 2017-18 and 50% in the year after that.
  • Each of these factors could be a game changer for the agriculture sector. With a good Kharif crop and agriculture showing over 4.1% growth, the availability of easy credit will go a long way in addressing the concerns of the farmers. But the big risk management for farming will be the expansion of the crop insurance scheme, which will enable more land to be brought under active cultivation.
  • The Union Budget has also put adequate focus on irrigation to reduce the dependence of Indian agriculture on the vagaries of the monsoon. The Long Term Irrigation Fund will see its resources augmented from Rs.20,000 crore to Rs.40,000 crore. There will also be a dedicated “Micro & Drip Irrigation” Fund worth Rs.5000 crore and will be administered through NABARD.
  • Drip and micro irrigation has been successfully implemented in countries like Israel despite a perpetual shortage of water and poor rainfall. The drip irrigation has contributed substantially to making Israel fertile and improving their yield per acre. This can go a long way in helping the small and marginal farmers, especially in rain-deficient parts of India.
  • The government has also focused its energies on key marketing infrastructure and post-harvest infrastructure in the Union Budget. Additionally, the government has also mooted the idea of Contract Farming on a much bigger scale in India.
  • The coverage of National Agricultural Markets (NAM) to be expanded from 250 APMCs to 585 APMCs ensuring that farmers get easy access to markets and also remunerative prices. The Union Budget has also laid emphasis on post-harvest infrastructure to reduce the $12 billion of food-grain wastage each year. Lastly, the Union Budget has also proposed a model law on Contract Farming, as a means of improving yield per acre.
  • Union Budget has an ambitious aim to bring nearly 1 crore rural households out of poverty by 2019. This will be achieved by fine tuning the Rs.300,000 crore spent on the rural poor each year. One of the metrics the government will try to achieve will be 100% electrification by mid-May 2018 across rural India.
  • Rural health has been a concern and also a cause of low productivity in rural areas. The sanitation coverage in rural India has moved up sharply from 42% in 2014 to 60% in 2016. The budget has also put forth an ambitious plan to provide clean drinking water in the next four years especially to villages where water is afflicted by fluoride and arsenic poisoning.
  • This Budget has allocated a record Rs.48,000 crore for the MNREGA (rural employment guarantee program) for the year 2017-18. More importantly, the percentage of women participation in MNREGA has gone up from 48% to 55%, implying improved value delivery to the rural power through the MNREGA program.
  • The big thrust to rural infrastructure has come from a big push to road building in the rural areas. The daily road construction under the Pradhan Mantri Grameen Sadak Yojana (PMGSY) has been enhanced to 133 km per day from just 73 km per day between 2011 and 2014. Additionally, the allocation for rural housing under Pradhan Mantri Awaas Yojana (PMAY) has been increased sharply from Rs.15,000 crore to Rs.23,000 crore in 2017-18.
  • This could be a game changer in terms of rural incomes and the generation of rural demand. For example, the additional allocation under the PMAY will be instrumental in building another 1 crore houses in rural India for those who do not have a house or who live in kuchha houses. From a long term perspective, the Union Budget has also tripled the allocation under the PM Employment Generation Program and the Credit Support Scheme. This will be a big boost for self-employment in rural areas.

The total allocation for rural, agricultural and allied sectors has been pegged at Rs.187,223 crore. This can have a substantially multiplier effect in terms of rural incomes and rural demand. Coming in the aftermath of the demonetization and the consequent cash crunch, this will make a substantive difference to rural India. More importantly, it will trigger a demand push for a number of industries like tractors, farm equipment, fast moving consumer goods, durables, agrochemicals, quality seeds. The best of rural India play may be yet to come!

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