Agriculture, Rural Development and Irrigation

1. What is a subsidy?

A subsidy is a sum of money granted by the govt to keep the price of a commodity or service low, thus helping an industry general public. For example, if the price of a LPG cylinder is Rs. 800 but the govt want to protect the public and do not want them to bear the high cost. So, the govt pays Rs. 300 to the seller and hence, seller has to charge only Rs. 500 from the public. This benefit of Rs. 300 is called subsidy and the govt bears the same. Direct Benefit Transfer is the scheme under which the subsidy is given to the public directly, not to the seller. So, the public pays Rs. 800 for the product to the seller but is reimbursed Rs. 300 by the govt. This prevents corruption and hoarding, while ensuring that the benefits of the subsidy are directly enjoyed by the public.

Highlights of the Union Budget 2016 for Agriculture, Rural Development and Irrigation –

  • The govt has increased the effective rate of service tax by charging 0.5% of the value of the service as Krishi Kalyan Cess (KKC). The govt estimates receipts of Rs. 5,000 crores through KKC.
  • Total allocation for Agriculture and Farmers’ Welfare is Rs. 35,984 crores. The Ministry of Agriculture and Farmers’ Welfare is allocated Rs. 44,485 crores. This is a big hike from the last budget allocation of Rs. 25,917 crores and revised estimates for 2015-16 of Rs. 22,958 crores.
  • Rs. 500 crores is allocated under National Food Security Mission for pulses production.
  • Ministry of Rural Development is allotted Rs. 87,765 crores, a major jump from Rs. 79,279 crores as revised estimates for 2015-16.
  • Allocation of Rs. 5,500 crores under Pradhan Mantri Fasal Bima Yojana is made.
  • Four major dairying projects, Pashudan Sanjivani and Nakul Sawsthya Patra, an advanced breeding technology, E- pashudan haat and a National Genomic centre for indigenous breeds, will be implemented over the next few years and Rs. 850 crores are assigned for the same.
  • The MGNREGA is allocated Rs. 38,500 crores. Last year, it was allocated Rs. 34,699 crores while the revised estimate for 2015-16 was Rs. 35,767 crores. The govt expects to generate 215 crores person-days of employment, as against 210 crores man-days estimated in the last budget. At least 5 lakh farm ponds and dug wells in rain-fed areas and 10 lakh compost pits for production of organic manure will be taken up by making productive use of the allocations under MGNREGA.
  • A new scheme called “Rashtriya Gram Swaraj Abhiyaan” is launched to develop governance capabilities of Pachayati Raj institutions. Rs. 655 crores is allocated for it.
  • Gram Panchayats and Municipalities will be allotted a grant of Rs. 2.87 lakh crore over the next 5 years. This is a 228% increase compared to the previous five year period. This amount will translate to an average of over Rs. 80 lakh per gram panchayat and over Rs. 21 crores per urban local body.
  • A dedicated Long Term Irrigation Fund will be established in NABARD, with an initial corpus of Rs. 20,000 crores. It will fast-track 89 irrigation projects covering over 80 lakh hectares. Of the said amount, Rs. 12,517 crores is provided in the budget this year and 23 projects will be completed by 31st March 2017.
  • The allocation for Pradhan Mantri Krishi Sinchai Yojana is increased from Rs. 5,300 crores in the last budget to Rs. 5,717 crores in this budget. This scheme mainly focuses on micro-irrigation and boosting water-use efficiency at farm level. 28.5 lakh hectares are planned to be brought under irrigation under this scheme.
  • National Land Records Modernisation Programme has been brought under Digital India initiative and will be launched as a central scheme from 1st April 2016. It will build an integrated land information management system and an allocation of Rs. 150 crores is made for the same.
  • Agricultural Credit target is raised to Rs. 9 lakh crore, as against Rs. 8.5 lakh crore last year.
  • 100% FDI is proposed to be allowed through FIPB route in marketing and processing of food products produced and made in India.
  • The total subsidy bill for food, fertilisers and fuels is estimated to be Rs. 2,31,781.61 crores. This is a 4% fall compared to the revised estimates for 2015-16.
  • Fertiliser subsidy is estimated to be Rs. 70,000 crores. Out of this, Rs. 51,000 crores is urea subsidy and Rs. 19,000 crores is the subsidy for decontrolled phosphoric and potassic fertilisers. The estimate in the last budget was Rs. 72,437.58 crores.
  • The Fuel subsidy for LPG and kerosene is estimated to be Rs. 26,947 crores. The estimate in the last budget was Rs. 30,000 crores while estimate for the year 2013-14 was Rs. 85,378.16 crores.
  • The food subsidy is estimated to be Rs. 1,34,834.61 crores, a decrease from revised estimate of Rs. 1,39,419 crores for 2015-16.
  • Direct Benefit Transfer for fertiliser subsidy will be launched in a few districts on pilot basis.

Implications –

  • Under-utilisation of funds when the agriculture sector is in a severe distress is alarming. The Ministry of Agriculture and Farmers’ Welfare needs to spend funds more effectively.
  • Allocation under National Food Security Mission for enhancing production of pulses was expected given the sharp rise in market prices over the last year.
  • Allocation for Rural Development Ministry is primarily targeted at MGNREGA, rural electrification, digital land records management and rural connectivity.
  • Dairying is a major supplement income for farmers. Pasudhan Sanjivani is an animal wellness program, Nakul Swasthya Patra is for provision of animal health cards and E-pashudan haat is an e-market for connecting breeders and farmers.
  • Govt claims that this year’s allocation for MGNREGA is the highest in the history of the program. This is contradicted by the fact that the allocation for the same was Rs. 40,100 crores in 2010-11.
  • The govt seems to have changed its stance regarding MGNREGA. The Prime Minister had criticised the scheme last year. Its budget allocation of Rs. 34,000 crores for 2014-15 was slashed to Rs. 31,000 crores as revised estimates for that year by the BJP govt soon after coming to power. 2014-15 also generated only 166.2 crore person-days of employment, an all-time low. Now, there is a renewed focus on the scheme in the light of severe rural-distress in the country.
  • It must be noted that MGNREGA is a demand-driven scheme and the govt is legally obliged to provide work to anybody seeking employment under it. So, any limit on allocation is technically redundant.
  • The new scheme Rashtriya Gram Swaraj Abhiyaan is also meant to emphasis on sustainable development, as mandated by the United Nations.
  • The grant to gram panchayats and municipalities can result in massive development, if used effectively and efficiently.
  • The focus on irrigation was long-due considering two continuous droughts. A good monsoon is expected this year. The funds for irrigation can really help the farmers and improve the situation.
  • Digitisation of land records is important for dispute-free transfer of rural land.
  • Allowing 100% FDI in the processing and marketing of food products produced in India will help farmers get higher price for their products and also reduce wastage and bring efficiency in operations. Multi-brand retail giants like Walmart and Ikea will be benefitted with this change in policy.
  • The fall in subsidy for fertilisers and fuels is a direct result of drastic fall in international crude oil prices.
  • Allocation for fertiliser subsidy is sufficient if international prices of urea, di ammonium phosphate and muritate of potash remain at the current low levels.
  • At the beginning of 2016-17, there are outstanding subsidy dues of Rs. 45,000 crores payable to the industry. Allocation of Rs. 70,000 crores may take care of subsidy of 2016-17 per se, but it will not cover the arrears built up from past years.
  • LPG and kerosene are the only items which are now subsidized through the fuel subsidy. Diesel and petrol have gone on from being subsidized to net-taxed fuels. The centre has, since June 2014, raised the specific excise duty on diesel from Rs. 3.56 to Rs. 17.33 per litre and on petrol from Rs. 9.48 to Rs. 21.48 per litre. Annual revenue gains from these hikes (hence, not allowing consumers to fully benefit from the slide in international crude prices) is estimated to be over Rs. 1.5 lakh crores.
  • The snail-pace approach for Direct Benefit Transfer of fertiliser subsidy is discouraging. The farmers will be benefitted immensely from DBT and it will also save the govt hundreds of crores due to reduced corruption, wastages and leakages.

We hope you liked this article. If you have any questions, please do ask via comments. We will be very happy to get back to you with all the answers. Thank you so much for all your support and encouragement during the entire series. We hope it helped you to get a basic idea about the govt plans direction of the economy. Thank you! We’ll be back with something new very soon!


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