IASbaba's Daily Current Affairs Analysis, IASbaba's Daily Current Affairs Feb 2017, UPSC

IASbaba’s Daily Current Affairs – 6th February 2017

Agriculture and Farmer’s Welfare

TOPIC: General Studies 3

Major crops cropping patterns in various parts of the country, different types of irrigation and irrigation systems storage, transport and marketing of agricultural produce and issues and related constraints; e?technology in the aid of farmers

Technology missions; economics of animal?rearing. Food processing and related industries in India? scope and significance, location, upstream and downstream requirements, supply chain management.

Budget 2017 and Agriculture

Introduction

The Union Budget 2017 announced a slew of measure to boost the agriculture sector. Higher agricultural credit, higher allocation for irrigation projects, a crop insurance scheme and increased allocations for MGNREGA to dig farm ponds were among the measures announced.

The concern raised is – will these help attain the goal of doubling the farmer’s income by 2022, as outlined in the last year’s budget and reemphasised again.

Issue

The Situation Assessment Survey of Agricultural Households in its NSS 70th round estimated that the average monthly income of the Indian farm household to be about Rs. 6,426 by. This included –

Net receipts from cultivation,
Farming of animals,
Non-farm business
Income from wages.

During the same period, the average monthly consumption expenditure per agricultural household was Rs. 6223. This shows that most of the earnings of the average farm household were spent in meeting consumption expenditures. For cultivation-related expenses, the farmer is mostly dependent on loans and the NSSO survey revealed that half of the farm households were neck-deep in debt.

Solutions:

For any real increase in income, farmers require higher returns for their produce.

Professor M. S. Swaminathan, founder of the M.S. Swaminathan Research Foundation said that the recommendations of the National Commission on Farmers are implemented

To provide the minimum price of the total cost of production plus 50%
In the case of rubber, for instance, a Price Stabilisation Fund was established which helped farmers get better prices for their produce.
Similar measures be introduced for other farm produce as well.

Problem with Agriculture Credit

As far as the farm loans are concerned, the agricultural credit is mostly netted by large companies.
Also nearly 50% of farmers are women, who often do not benefit from credit policies as they don’t have land titles in their name.
Unless land titling recognises female ownership of land for cultivation, half of India’s farmers cannot claim institutional credit.

Other Problems:

Chasing the goal of doubling incomes lacks clarity as to whether it is nominal incomes or real incomes that are referred to.
It is also unclear whether it is income from agriculture or that of agricultural households being targeted.
Agriculture will have to grow at 12 or 14% to realise such rise in earnings. (At present, the growth rates stand at a poor 1.2%, according to World Bank data.)
The problem of economic viability of farming is one of rising input prices such as for fertilisers, pesticides and seeds and stagnating output prices as MSP is not rising.
Protectionist barriers for Indian farmers are much lower now and there is little increase in expenditure for agriculture.

Climate change its impact on agriculture:

Tackling climate change and its potential impact also requires a budget to safeguard farmers.

Given the drought and errant rainfall affecting farmers, the government’s step to create five lakh more farm ponds that will work as a drought-proofing measure in gram panchayats.
But everything depends on how well the schemes are executed on the ground.

Crop Insurance and Issues

The crop insurance scheme aims to rightly protect farmers from the vagaries of the weather, allocations for which have been increased in the 2017 Budget.
The terms of the Pradhan Mantri Krishi Bima Yojana spell out that the amount of insurance cover depends on the premium paid and extent of cover, so a farmer may not necessarily recover all losses sustained from crop damage in case of an eventuality.
National Adaptation Fund for Climate Change – the government made only a paltry allocation of Rs. 130 crore to this Fund in the 2017-18 budget.
- This is disturbing in the wake of the fact that the country faced unprecedented drought affecting 330 million people last year.

Agricultural Marketing, Subsidies and other issues

The credit ratings agency ICRA welcomed the expansion in coverage of National Agriculture Markets (e-NAM), an online agriculture market, from 250 to 585 APMCs in the Budget.
The subsidy hike of 6% for the phosphatic and potassic segment was also seen as a positive thrust for the manufacturers and traders of these fertilisers.
Farmers needed an incentive to go organic as high input costs of fertilisers had raised farm debts. Organic Farming did not get any attention in the Budget.
NABARD welcomed the hike in the corpus of the Long-term Irrigation Fund.
- Focus on drip irrigation will not be sufficient, and though more funds were allocated for irrigation, no expansions of specific projects for irrigation were made during the Budget.
The setting up of a Dairy Processing and Infrastructure Development Fund at NABARD, with a corpus of Rs. 8,000 crore over three years, was also appreciated by them.

Conclusion

Indian farmers do not constitute a homogenous community. There are rich, land-owning farmers and then there are poor, landless farmers.

It is observed that a new nexus was now emerging comprising farm contractors and big traders combined with rich landowners in rural India, which was replacing the feudal landowning structures of the past.

Also, in spite of food price inflation in recent times, farmers’ gross income will not increase automatically. Being both producers and consumers of food, farmers do not stand to gain from inflation either.

The need is for a holistic policy that has multidimensional orientation.

Connecting the dots

Agriculture is always a gamble in India with multiple factors being contingent. Critically analyse the budget provisions for agriculture and suggest the necessary modifications.

ECONOMY

TOPIC:

General Studies 3

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Government Budgeting.

General Studies 2

Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Budget 2017-18: Focus on domestic growth

The budget was presented at a historic moment in the Indian economy post the demonetisation decision.
While it has been concretely known that rural economy has been one of the hardest hit sector of the demonetisation effect, concurrently, the global economic atmosphere is also changing as several governments in developed countries have become more protectionist.
Hence, the export driven growth models followed by China in manufacturing and India in IT-enabled services are expected to have diminishing returns. (A point where at which the level of profits or benefits gained is less than the amount of money or energy invested.)
This provides an opportunity for larger economies like India to shift away from export-oriented growth to domestic-consumption-based growth unlike smaller economies such as those of the East Asian nations which had limited domestic demand.

Boosting domestic consumption

To shift the economy towards domestic-consumption-based growth model, the rural demand and demand among the poorer sections of society has to be increased significantly.
This is possible only if productive jobs and productive enterprises increase considerably for the poorer sections of the society.
This will enhance disposable income among the domestic population (disposable income= the amount of money that households have available for spending and saving after income taxes have been accounted for)
For this, ‘Make in India’ will need to be combined with ‘Make for India’, ‘Skill India’ with ‘Work gainfully in India’ and ‘Startup India with ‘Feed, clothe, house and serve India’. Also, regional blocs are becoming more important and intra-regional trade is now taking precedence over global trade.
However, with the current level of inequality, such a boost in domestic consumption is difficult to happen in the immediate future. Along with inequality, India also has very large increases in inequality since 1990.
Though liberalisation helped India in reducing poverty with rural poverty reaching 30% in 2011 from 80% in 1990 and urban poverty from 40% in 1990 to 20% in 2011, these figures are not very encouraging when compared to nations like Vietnam and Indonesia which had higher poverty levels than India in 1990 but have been able to do better than India in reducing it today.
This shows that equitable distribution in the gains from growth is required to boost the consumption capacity of the Indian economy.

Job creation

One of the reason for huge concentration of wealth is increasing return to capital versus labour.
In almost all rich countries and in most developing countries, the share of national income going to workers has been falling. This means that workers are capturing less and less of the gains from growth.
In contrast, the owners of the capital have seen their capital grow through interest payments, dividends or retained profits faster than the rate at which the economy has been growing. Adding to it, tax avoidance by the owners of capital has increased the gap between returns to capital and labour.
Hence, to balance this disparity, creating jobs in the economy is a paramount priority.

Budget 2017-18: Allocations to fuel domestic demand

The government has emphasised on reducing risks in the poorer and weaker sections of society through large-scale insurance programmes and credit availability. As the economic shocks affect the poor significantly more than the rich or the middle classes, it is necessary to increase their ability to bounce back from economic shocks.
The budget proposes to increase coverage under the Pradhan Mantri Fasal Bima Yojana scheme to 40% in FY18 and 50% in FY19. The progress on this front is encouraging with 39 million hectares or 26.5% of all farmers covered as of December 2016.
The target for agriculture and allied credit has been substantially set at Rs. 10 trillion.
The allocation to the Pradhan Mantri Krishi Sinchayee Yojana is up 71% when compared with the FY17 estimate.
Also, the doubling of total corpus of the National Bank for Agriculture and Rural Development’s (Nabard) Long-Term Irrigation Fund and a new micro-irrigation fund are also important steps in this direction.
Along with this, it is necessary to Increase allocation for construction activities such as roads and affordable housing as they are highly labour-intensive and employ low-skill workers.
Allocation to Pradhan Mantri Awas Yojana for affordable housing has increased allocation of 38.7% over FY17. Similarly, 44% increase in allocation to rural housing will also help push job creation and create demand in the rural economy just as providing infrastructure status to affordable housing will facilitate higher investments and create low-skilled jobs in this sector.
The corporate income tax for SMEs having an annual turnover of less than Rs. 50 crore has been reduced to 25% from 30%. Also, special package for textiles and some other labour-intensive sectors will help to increase employment as well as push for a domestic growth driven economy.
On the macro side, the public capital expenditure has been increased by whopping 24.5% with a view to attract private investment.

Conclusion

Private consumption is a measure of all the money spent by consumers in India to buy goods and services. This is a major part of the country’s GDP (55% of GDP) and used as a tool to measure the robustness of the economy. Even though consumption received a jolt following demonetisation, the government refrained from giving a cyclical push through higher subsidies. Rather it chose to lift consumption by increasing investment in activities such as housing and construction in generating employment. Thus, though budget hasn’t proposed big giveaways to the middle-class, its feel-good provisions may succeed in boosting consumer sentiment. Emphasis on outcome-based monitoring advocated by the government when carefully monitored ensure success of the initiatives. Such success would pave the way for the economy to substitute away from the focus on export-oriented growth to domestic-consumption-based growth.