A Setback for the Farm (GS Paper 3, Economy)
Introduction
- In the fiscal year 2023-24, India's economy showcased robust growth with a GDP increase of 8.2%.
- Projections suggest this growth will continue above 7% into FY25. However, the agriculture sector faced a significant downturn, with growth plummeting from 4.7% in FY23 to just 1.4% in FY24.
- Given this scenario, one would have anticipated substantial measures in the budget to invigorate the agricultural sector.
R&D in Agriculture Remains Underfunded
- Return on Investment (RoI) in Agri-R&D: Investment in agricultural research and development (R&D) has demonstrated a high return, with every additional ₹1,000 crore investment yielding ₹10,000 crore in agri-GDP. Such investments could substantially enhance agricultural growth.
- Current Budget Allocation: Despite the evident benefits of R&D, the budget allocated to the Department of Agricultural Research and Education (DARE) stands at ₹99.4 billion. This reflects a mere 0.7% increase from the previous year's allocation of ₹98.8 billion. This increase is insufficient given the rising needs of the sector.
- Historical Context: In 2020-21, agriculture R&D expenditure was ₹160 billion, with the public sector contributing 89% and the private sector 11%. However, the Agriculture Research Intensity (ARI), which measures R&D investment as a percentage of agri-GDP, has declined from a peak of 0.75% in 2008-09 to 0.43% in 2022-23. With reduced allocations, this ratio is expected to fall further, impacting food security and inflation control.
Budget Allocations and Inflation
- Overall Allocation: The budget has earmarked ₹1.52 trillion for the agriculture and allied sectors. The Ministry of Agriculture and Farmers’ Welfare received ₹1.22 trillion, marking a 5% increase from the previous year's revised estimate of ₹1.16 trillion. This increase is marginal and insufficient to counter inflationary pressures.
- Sector-Specific Increases: The Ministry of Fisheries, Animal Husbandry, and Dairying saw a substantial 27% increase in allocation, rising from ₹56 billion in FY24 to ₹71 billion in FY25. This rise indicates positive development in this sector but does not extend to the broader agricultural sector.
Focus on Welfare Schemes and Subsidies
- Welfare Measures: A significant portion of support to the agricultural and rural sectors is channeled through welfare measures and subsidies rather than direct agricultural investments. Key components include:
- Food and Fertiliser Subsidies: These are critical for stabilizing costs but do not directly address the underlying issues in agriculture.
- Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): Provides income support to rural labor, indirectly benefiting the agricultural sector.
- Direct Income Support: Programs like PM-KISAN, credit subsidies, and PM-Fasal Bima Yojana offer direct income support to farmers. However, these measures amount to ₹5.52 trillion for FY25, slightly down from the revised estimate of ₹5.8 trillion for FY24. This represents 11.5% of the overall budget and 21.4% of the central government’s net tax revenue.
- Food Subsidy Trends: The food subsidy has been reduced to ₹2.05 trillion from ₹2.12 trillion in FY24. Although this decrease may reflect economic constraints, the primary beneficiaries are consumers, not farmers.
Economic Survey 2023-24 Insights
- Policy Concerns: The Economic Survey for 2023-24 highlighted the need for reformed agricultural policies. Current practices have led to increased productivity but have also caused soil degradation, groundwater depletion, and negative environmental impacts, including increased greenhouse gas emissions. Furthermore, these practices have adversely affected public health by promoting diets high in sugar and carbohydrates rather than balanced nutrition.
Conclusion
- There is an urgent need to transform the agriculture sector into a growth engine that supports both farmers and the environment.
- Effective policy reforms should focus on reorienting subsidies and investments to enhance agricultural productivity, boost farmers' incomes, and create opportunities in food processing and exports.
- This pivotal shift may be deferred to future budgets, but it is essential for sustainable agricultural development and economic resilience.
