The Gist of Yojana: May 2016

The Gist of Yojana: May 2016

Union Budget 2016-17 - Highlights

Growth of Economy accelerated to 7.6% in 2015-16

Allocation for Agriculture and Farmers’ welfare is Rs 35,984 crore. ‘Pradhan Mantri Krishi Sinchai Yojana’ to be implemented in mission mode. 28.5 lakh hectares will be brought under irrigation.

  • Implementation of 89 irrigation projects under AIBP, which are languishing for a long time, will be fast tracked
  • A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about Rs 20,000 crore .

Allocation for rural sector - Rs 87,765 crore. A sum of Rs 38,500 crore allocated for MGNREGS.

  • 100% village electrification by 1st May, 2018.
  • A new Digital Literacy Mission Scheme for rural India to cover around 6 crore additional household within the next 3 years.
  • New scheme Rashtriya Gram Swaraj Abhiyan proposed with allocation of Rs 655 crore

Allocation for social sector including education and health care - Rs 1,51,581 crore.

  • Rs 2,000 crore allocated for initial cost of providing LPG connections to BPL families.
  • 3,000 Stores under Prime Minister’s Jan Aushadhi Yojana will be opened during 2016-17.
  • ‘National Dialysis Services Programme’ to be started under National Health Mission through PPP mode.
  • “Stand Up India Scheme” to facilitate at least two projects per bank branch. This will benefit at least 2.5 lakh entrepreneurs.
  • National Scheduled Caste and Scheduled Tribe Hub to be set up in partnership with industry associations.

Education - 62 new Navodaya Vidyalayas will be opened

  • Regulatory architecture to be provided to ten public and ten private institutions to emerge as world-class Teaching and. Research Institutions.
  • Higher Education Financing Agency to be set-up with initial capital base of Rs 1000 crores.
  • Digital Depository for School Leaving Certificates, College Degrees, Academic Awards and Mark sheets to be set-up.

Skill Development. Allocation for skill development - Rs 1804. crore.

  • 1500 Multi Skill Training Institutes to be set-up.
  • National Board for Skill Development Certification to be setup in partnership with the industry and academia.
  • Entrepreneurship Education and Training through Massive Open Online Courses.

Total investment in the road sector, including PMGSY allocation, would be Rs 97,000 crore during 2016-17. To approve nearly 10,000 kms of National Highways in 2016-17.

  • Allocation of Rs 55,000 crore in the Budget for Roads. Additional Rs 15,000 crore to be raised by NHAI through bonds.
  • Total outlay for infrastructure Rs 2,21,246 crore.

Allocation of Rs 25,000 crore towards recapitalisation of Public Sector Banks.

  • Target of amount sanctioned under Pradhan Mantri Mudra Yojana increased to Rs 1,80,000 crore.

Amendments in Companies Act to improve enabling environment for start-ups.

  • Price Stabilisation Fund with a corpus of Rs 900 crore to help maintain stable prices of Pulses.
  • “Ek Bharat Shreshtha Bharat” programme will be launched to link States and Districts in an annual programme that connects people through exchanges in areas of language, trade, culture, travel and tourism.

100% de uction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019.

A Shot in the Arm of Agriculture

The Union Budget2016-17 is highly encouraging as regards agriculture and rural development. Many new initiatives, particularly related to irrigation, have been introduced to address the long-run issue of agricultural growth. This budget comes in the backdrop of a sluggish performance of the agricultural sector in the last two years because of the two consecutive drought years.

After an encouraging performance during the XI Five Year Plan period, agricultural growth has stuttered somewhat, with a growth rate of 1.5 per cent in 2012-13, followed by growth rates of 4.2 per cent and -0.2 per cent in the subsequent two years. The latest estimates from the CSO indicate that 2015-16 will be only marginally better with a projected growth rate of 1.1 per cent. Notwithstanding two consecutive droughts, structural problems ranging from irrigation to input provision to marketing are responsible for this deceleration. The present budget attempted to address some of these long-standing issues faced by agriculture. The positive initiatives proposed broadly relate to irrigation, rural infrastructure and marketing.

This adverse situation was largely due to continuous decline in capital investment in agriculture, aggravated further by reduced input usage due to decline in farm profitability. The first signs of turnaround came in 2005-06, with improvement in input usage, aided by some positive state action. Some of the subsequent programs launched in 2007-08 helped maintain and further accelerate this growth momentum. Programs to increase investment in agriculture by states (RKVY) and targeted increase in food production (NFSM) helped this process. These programs helped agriculture in improving its growth performance over the last few years. However, production uncertainty and marketing bottlenecks still continue to plague the sector. The present budget attempted to address some of these long-standing issues.

Irrigation: One of the major problems facing Indian agriculture is its excessive dependence on monsoon. Only about 45 per cent of the cropped area in the country is irrigated, which results in wide-spread production uncertainty. This budget attempted to address this issue in a major way through the Pradhan Mantri Krishi Sinchai Yojana (PMKSY). This major irrigation program, with an outlay of f17000 crores, aims to bring new area of about 28 lakh hectares under irrigation. There are also proposals to reinvigorate 89 defunct irrigation schemes under the Accelerated Irrigation Benefit Program (AIBP), which is expected to benefit about 81 lakh hectares. Harnessing groundwater resources is proposed to be undertaken at a cost of Rs 6000 crores. There are also complementary programs to improve farm ponds, desilting and dug wells under MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme). All these initiatives, together with the proposed long-term irrigation fund of 25,000 crores, are certain to be high beneficial to agricultural growth.
Credit and Insurance: Credit ‘Constraint is an important bottleneck in agriculture. Although, the ratio of agricultural credit to agricultural GDP has increased from 10 per cent in 1999-2000 to 38 per cent in 2012-13, the share of long-term credit has declined sharply in recent years, falling from 55 per cent in 2006-07 to 39 per cent 2011-12. This needs to be arrested in the long-run interest of the sector. Perhaps with this objective, the target for agricultural credit in the current budget has been increased to 9 lakh crores from 8.5 lakh crores in the previous year. In addition, a provision of about Rs 15,000 crores has been made to provide relief to the farmers in the form of interest subvention.

However, much will depend on the access to credit of the actual cultivators, which depends on the legal right to land or formal tenancy. Crop losses due to vagaries of climate is debilitating to the farmers. A revamped insurance program has been announced recently to address this (PMFBY or Prime Minister’s Fasal Bima Yojana). An allocation of Rs. 5,500 crores has been made to this new crop insurance scheme.

Procurement, Distribution and Marketing: One of the interesting proposals is to encourage more states to take up decentralized procurement through online procurement and a transparent mechanism. A buffer stock of pulses is also proposed to be built through procurement. There is also a proposal to automate 3 lakh fair price shops (out of a total of about 5.35 lakh FPS in the country). A scheme for setting up a National Agriculture Market (NAM) through Agri-Tech Infrastructure Fund (AITF) was approved by the cabinet in July 20 15 with a budget of Rs 200 crores. The current budget proposes to connect about 585 regulated markets under this scheme. However, there are significant barriers to this. To implement this, all the states need to amend their respective Agricultural Produce Marketing Committee Acts (APMC). This also involves evolving system with a single license valid across the state, single point levy of market fee and provision of electronic auctioning system for price discovery. At present, only 12 states have amended the APMC Acts and speedy action is needed from other states to fully operationalize this.

Rural Development: The total allocation to the rural development has been increased to about 87,765 crores, out of which about Rs 38,500 crores is allocated to MGNREGS. By far, the biggest allocation for the rural sector comes from the increased grants-in-aid to Gram Panchayats and Municipalities to the tune of about 2.87 lakh crores. This is likely to translate into Rs .80 lakhs per gram panchayat, which is substantial. The increased allocation for rural roads under PMGSY (Prime Minister s Grameen Sadak Yojana) is also a step in the right direction. The rural non-farm sector in general and rural construction, transportation and services in particular, have been the main sources of rural non-farm employment in the recent past. These increases in allocations should have a positive effect on spending in the rural non-farm sector, which in turn, should have positive effect on rural employment.

The Budget falls short of expectations mainly on the following aspects.

The first relates to the incentives for states to invest in agriculture. After all, agriculture is a state subject and the states need to step up investment to achieve growth in the sector. There is a distinct slowdown in investment in agriculture in recent years. Gross capital formation in agriculture (as a percentage of the gross value added in agriculture) has declined from 18.3 per cent in 2011-12 to 15.8 per cent in 2014-15. This sharp fall in investment during the last few years is in sharp contrast to the rapid increase since 2004-05.

The second issue relates to the top-down approach. India is a heterogenous country with large differences in agro-clirnatic conditions. The massive irrigation program, crop insurance program or any other programs proposed in the ‘current Budget will need to be tailored to local conditions to be successful.

Another important issue that has a bearing on the success of many of the proposed initiatives such as credit, DBT or insurance is the tenancy reforms and modernization of land records. Success of many of these proposed initiatives hinges crucially on the correct identification of the beneficiaries. Modernization of land records, establishment of secure property rights and undertaking tenancy reforms is sine qua non to the success of many of the proposed initiatives. Reforming tenancy laws is urgently needed to make tenancy agreements formal.

The last issue is related to the modernization of extension services. There is little focus in most of the recent Budgets, including the current one, on this important aspect of agriculture. A large part of the non-adoption of technology, non-utilization of government schemes etc can be traced to lack of awareness on the part of farmers because of poor extension. It is imperative that extension services need to be vastly improved to put agriculture firmly on a higher growth path.

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