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Mainstream, VOL LVI No 11 New Delhi March 3, 2018

Union Budget 2018-19: Alleviating Farmers’ Distress

Monday 5 March 2018


by P.K. Bhargava and Jyoti Bhargava

In the process of diversification of the Indian economy, the contribution of agriculture to GDP has tended to decline and presently its share is only around 17 per cent. However, the agricultural sector continues to be the largest employer in the economy (about 48 per cent in total employment) and a source of livelihood for a majority of the population, The sector, therefore, continues to be the soul of the Indian economy as also for the people of India.

Unfortunately, the average growth rate of the agricultural GDP during the past four years (2014-15 to 2017-18) has been only 2.2 per cent per annum which is much below the envisaged target of four per cent per annum.

It is after much delay that agriculture has been accorded considerable importance in the Union Budget for 2018-19 as it is evidenced by a number of initiatives announced by the Finance Minister. These initiatives include significant measures in the field of agricultural marketing, enabling the farmers to make direct sale to consumers and bulk purchasers. In addition, measures have also been incorporated to promote cultivation of horticulture crops, organic farming, strengthening and developing food processing industry, protecting seasonal and perishable commodities through an initiative called ‘operation Greens’, tapping the potential of agri-exports, increase in the volume of institutional credit and extension of the facility of kisan credit cards to fisheries and animal husbandry farmers. Besides, some specific initiatives, such as setting up of ‘Restructured Nation Bamboo Mission’ to promote the bamboo sector, ‘Fisheries and Aquaculture Infrastructure Development Fund’ for the fisheries sector and ‘Animal Husbandry infrastructure Development Fund’ for financing infrastructure requirement of the animal husbandry sector, have also been incorporated in the Union Budget for 2018-19.

It needs to be recorded that there is a paradigm shift in the government’s approach as it is resolved and committed to double the farmers’ income by 2022 when the nation will celebrate its 75th year of Independence. As against the earlier approach of agriculther being production-centric, the emphasis will now also be on a higher level of income for the farmer. The Union Finance Minister in his Budget speech rightly observed that “We consider agriculture as an enterprise and want to help farmers produce more from the same land, parcel at lesser cost and simultaneously realise higher prices for their produce.” In this context, the government’s approach is that the farmers should realise at least 50 per cent more than the cost of their produce; in other words, one-and-a-half times of the cost of their production.

Being such a sensitive issue, the government has rightly declared the minimum support price (MSP) for the majority of rabi crops at least one-and-a-half times the cost involved. This norm shall apply to the rest of the corps as well. It is also equally important that some mechanism be devised whereby the farmer must get, at least, the price which is equal to the declared MSP, in case the market price is lower than that of the MSP. It is reported that NITI Aayog in consultation with Central and State governments will put in a foolproof mechanism so that the farmers get adequate price for their produce.

Additionally, it is also required that the same principle should also apply to seasonal and perishable fruits and vegetables so that the farmers are not compelled for a distress sale as has, at times, been the case with potato, onion and tomato. It would equally be desirable in the interest of farmers that food processing units, which use these items as raw material, have a prior agreement with the farmers for the purchase of their produce and also the storage facilities be developed. The State governments should be encouraged by the Centre not only to develop and strengthen the food processing industry units, but at the same time also develop storage facilities. A scheme of setting-up a ‘Price Stabilisation Fund’ for procurement of such produce from the farmers by the State governments should also be considered and implemented.

Agriculture, specially for a country like India, will continue to be important, even though its contribution to GDP has declined. Agriculture by its very nature is the true source of wealth: land will always produce much more than the inputs used in the process of production. Agriculture also has the backward and forward linkages. Agriculture not only generates the demand for various inputs used in the process of production but it further provides various types of raw materials for industry and food for mankind. Agriculture, therefore, must be accorded due priority and it would be in the fitness of things that it is given the status of an ‘industry’.

Agriculture being a State subject, the initiative has to come from the Centre. The NITI Aayog in consultation with the Centre and the States should have a long-term policy for development of agriculture on a sustainable basis. Agriculture should no longer be dependent on the vagaries of nature. With the increasing needs of agricultural products, India, now emerging as a global power, must have a comprehensive agenda for the development of agriculture. Along with it, it is also necessary to develop adequate physical infrastructure, such as roads, electricity and irrigation facilities, so that rural areas become as important as the cities in order to ensure minimum migration from rural areas to the urban cities.

As a vast majority of population lives in rural areas, rural demand is important to promote investment in the economy. Apart from the various measures incorporated in the Budget for agricultural development, schemes like MGNREGA (Rs 550 billion), Pradhan Mantri Gram Sadak Yojana (Rs 190 billion), Pradhan Mantri Awas Yojana (Rs 210 billion), National Rural Livelihood Mission (Rs 57 billion) are some of the important schemes which will boost rural demand. As per the Budget 2018-19, the total amount to be spent by the Ministries for creation of livelihood and infrastructure will be of the order of Rs 14.34 trillion. Such schemes and programmes in rural areas will accelerate investment and contribute to the growth of the economy. However, it is extremely important that leakages at various levels be checked effectively and delay at the implementation level be minimised to avoid cost escalation.

Finally, it may be pointed out as is also well-known that most of the farmers in the country have small land holdings and it is, therefore, quite logical in their case not to levy any tax on their income. However, a small percentage of rural households have large land holdings of 25-30 acres or above, and from the point of view of equity their incomes ought to be taxed. Of course, taxation of agricultural income being a State subject, agricultural income of even the relatively large and rich land holders has continued to be outside the tax net. This has created inequity not only amongst the agriculturists but at the same time fresh inequity has been created between the rural rich (very few in number) and their counterparts in the urban areas. It has also been a source of converting black money into white and a source of tax evasion. With the rapid changes taking place in the Indian economy, two changes are desirable in the tax system: either the rich farmers be taxed in the same manner as their counterparts in urban areas are treated for tax purposes or at least, the income originating in the agricultural sector be considered for calculating the rate of tax on non-agricultural income so that a great source of generating black money in the economy is monitored. This is like preventing benami transactions in the economy. Such a step is in the interest of not only rural India but the country as a whole. The earlier it is done, the better would it be.

Prof. P. K. Bhargava is a former Emeritus fellow, UGC and Dean, Faculty of Social Sciences, Banaras Hindu University.

Dr Jyoti Bhargava is an Associate Professor, Faculty of Commerce, National P.G College, Lucknow.

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