Does the Budget give a leg-up to agriculture?

25 Feb 2022

Opinion: Bornali Bhandari & Ajaya K Sahu

A marginal re-allocation of expenditure away from income support towards more productivity and employment enhancement schemes could have been adopted

The agriculture and allied sector is going through a slow but dynamic change. Does Union Budget 2022-23 anchor the sector into its more dynamic growth path? The answer lies in the details.

The real growth of the agriculture and allied sector has averaged around 3.6 per cent for the last decade (2012-13 to 2021-22) with a 70 per cent coefficient of variation (CV) — that is growth in this sector has been volatile. It was the only sector that exhibited positive growth in 2020-21 at 3.6 per cent and is forecast to grow at 3.9 per cent in 2021-22 (MoSPI). Growth in real gross capital formation (GCF) in this sector has been highly volatile (CV of 392 per cent). The GCF-output ratio in the sector declined from 14.1 per cent in 2011-12 to 10.8 per cent in 2020-21 in nominal terms (MoSPI).

Within the sector the share of the crops sub-sector has decreased from 65.4 per cent in 2011-12 to 55.1 per cent in 2020-21. The shares of livestock and fishing & aquaculture have gone up from 21.8 per cent and 4.5 per cent in 2011-12 to 30 per cent and 6.7 per cent in 2020-21 respectively. While the decadal average growth of real GVA of ‘crops’ was barely 1.6 per cent it was 7.3 per cent for ‘livestock’ and 8.2 per cent for ‘fishing’.

Productivity growth

There has been a rapid rise in agricultural productivity of foodgrains (driven mainly by rice and wheat) whereas the productivity growth in the case of pulses oilseeds nutri-cereals and horticultural crops have remained sluggish (RBI Bulletin January 2022). Even then agricultural productivity in foodgrains is lower than that of many emerging countries because of low farm mechanisation and irrigation levels etc.

Agricultural exports as a percentage of total goods exports have gone up from 8.3 per cent in 2016-17 to 10.2 per cent in 2020-21 (Ministry of Commerce). The share of the allied sector in agricultural exports has risen over time (RBI Bulletin January 2022). Specifically the share of animal husbandry has risen from 10.4 per cent in the triennium ending (TE) 2000 to 20.2 per cent in TE 2020. Further there has been an expansion in agricultural export destinations.

In 2019-20 the agriculture and allied sector formed 16.7 per cent of GDP and employed 45.5 per cent of the workforce (versus 48.8 per cent in 2011-12). Further the sector acted as the shock-absorber — in April-June 2020 the share of agriculture in the workforce rose to 46.5 per cent. The average monthly income per agricultural household has gone up from ₹6426 in 2013 to ₹10218 in 2019 ( Economic Survey 2021-22).

After accounting for retail rural inflation the compound annual growth rate was 3.4 per cent lower than real GDP (6.8 per cent). The share of income from wages/salary went up from 32 per cent to 40 per cent farming of animals rose from 12 per cent to 16 per cent but cultivation came down from 48 per cent to 37 per cent between 2013 and 2019.

The need of the hour is to improve productivity of the agriculture and allied sector create jobs in the rural sector and provide income support in that order.

Allocation of funds

The combination of expenditures of agriculture and allied activities rural development and fertiliser subsidies form 11.7 per cent of total Central expenditure. It is 6.3 per cent lower than 2021-22 Revised Estimates (RE). Within that fertiliser subsidies PM-KISAN and Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) together form around 53 per cent of total expenditure.

Despite the allocation of expenditure coming down by almost 25 per cent between 2021-22 RE and 2022-23 BE the share of fertiliser subsidies in Budget 2022 was high at 22.8 per cent. Allocation to irrigation has come down by 11.6 per cent driven by a 67 per cent fall in allocation to major irrigation.

Allocations to major & medium irrigation and minor irrigation have risen by 32.6 per cent and 16.5 per cent respectively. The Sub Mission on Agriculture Mechanisation was underutilised in 2021-22 and there is no allocation to the scheme in 2022-23 BE. The Market Intervention Scheme and Price Support Scheme (MIS-PSS) and the Pradhan Mantri-Annadata Aya Sanrakshan Abhiyan (PM-AASHA) which were set up to ensure proper price for farmers’ produce have seen drastic cuts in this year’s Budget.

The earlier one saw a cut of 58 per cent over 2021-22 RE and the latter was almost done away with. Also allocation to the Agriculture Infrastructure Fund (AIF) which is earmarked for post-harvest infrastructure decreased to ₹500 crore in 2022-23 BE from ₹900 crore 2021-22 BE.

Allocations to fisheries and animal husbandry sub-sectors increased by 50.5 per cent and 44.4 per cent respectively in 2022-23 BE compared to 2021-22 RE. Eighty-nine per cent of total allocation in the former is devoted to the Blue Revolution scheme. In the animal husbandry department only 68.9 per cent is for Animal Husbandry and Dairy Development.

The allocation to MGNREGS has come down by 25 per cent in 2022-23 BE compared to 2021-22 RE but is the same as 2021-22 BE. It forms 15.8 per cent of total expenditure in Budget 2022. The MGNREGS data shows that the April-January gap between jobs provided and demanded remained virtually stagnant between 2020-21 and 2021-22 at 17 per cent and 16 per cent respectively.

Allocations to other job-creating schemes were enhanced. Compared to 2021-22 RE the 2022-23 BE allocation increased by 35.7 per cent 13.9 per cent and 46.7 per cent for Pradhan Gram Sadak Yojana National Rural Livelihood Mission and Shyama Prasad Mukherjee Rurban Mission respectively. Allocation to Pradhan Mantri Awas Yojana came down by 1.9 per cent. However the increase in all these schemes put together is lower than deduction in MGNREGA.

The allocation to the income support scheme PM-KISAN has gone up marginally by 0.8 per cent in 2022-23 BE versus 2021-22 RE. The government has appropriately increased expenditure on the more dynamic allied sub-sector. There is a relatively lower focus on improving the productivity of the crops sub-sector both pre-harvest and post-harvest.

There is an effort to change the mechanism of creating rural jobs away from MGNREGA to other schemes but the deduction away from MGNREGA is higher than the increase to other schemes. Marginal re-allocation of expenditure away from income support towards more productivity and employment enhancement schemes could have been adopted.

Bhandari is a Senior Fellow and Sahu is a Senior Research Analyst at NCAER. Views are personal