BUDGET EXPECTATIONS : AGRICULTURAL SECTOR

21 Jan 2023 , 09:11 AM

Even in the first estimates of FY23 GDP released on 07ths January 2023, the projected full year GDP growth for FY23 has been pegged at 6.8% while agricultural growth has been steady at 3.5%. The government has been largely successful in pushing farm incomes higher through better minimum support prices (MSP), but there is a long way to go still. Here is what the agricultural sector expects from Union Budget 2023-24.

Tax exemptions for players in the agri value chain

In the entire agriculture story, it is the agriculture value chain that plays a key role and is often overlooked. Of course, one of the key items would be the rationalisation of goods and services tax (GST). The agricultural sector also wants the space to be modernized. For instance it is estimated by a recent study by Deloitte that an investment of $270 billion into agriculture by the year 2031 can generate multiplier effect revenues to the tune of $800 billion in the agricultural sector. That would be largely the benefits of modernising agriculture and Union Budget 2023-24 is expected to take the first step in that direction. These would be largely focused on the supply side of agriculture.

Offering a big boost for agrochemical companies

Is the Budget 2023-24 likely to offer a big boost to the agrochemical companies? In fact, agrochemicals and fertilizers are two sectors that could see substantial boost to their revenues from this Union Budget. For instance, the companies that manufacturing urea and nitrogenous fertilizers are expected to be key beneficiaries due to the changing fertilizer mix likely to be proposed in this budget. In addition, the higher allocations and stable subsidies for food and fertilizers will help get a higher crop yield. The budget is expected to focus on initiatives to improve crop realisations as well as non-farm incomes. This includes increased budgetary allocation towards MGNREGA. Non-farm incomes include focus on livestock farming, horticulture and food processing.

Fertilizer subsidy to be enhanced in Budget 2023-24

The Union Budget is likely to entail additional budgetary allocations towards development of irrigation facilities and crop insurance scheme. Banks are also likely to be goaded to disburse higher agricultural credit in the current year. Amidst the rising prices of fertilizer inputs and the spike in global fertilizer prices, the subsidy for fertilizers is only likely to increase sharply in the current Union Budget. The overall subsidy requirements for the fertiliser sector subsidies are expected to touch Rs2.50 trillion in FY23, nearly 55% higher than the previous year. Rating agency ICRA expects the fertilizer subsidy allocation in FY24 to be further enhanced from these levels to take care of higher price of fertilizers and to ensure that the farmer crop yields do not get impacted. 

There are likely to be other favourable tweaks for the farm sector in the fertilizer subsidy space. For instance, lowering of import duties on raw materials like phosphoric acid and ammonia have been key demands to improve competitiveness of the domestic phosphatic fertiliser manufacturers. The government may accede to these demands in the budget. Also, there could be reduction of import duty on LNG for urea industry, as the consumption of LNG to fire fertilizer plants is on the rise. At a more strategic level, the Union Budge 2023-24 is also likely to focus on a roadmap to increase the balanced use of fertilizers and reduce dependence on specific fertilisers. One option could be the enhanced use of nano fertilizers, which could happen considering they are more environment friendly too.

Budget is likely to focus more on agri infrastructure

The Union Budget 2023-24 is likely to focus more on pre-sale and post-sale infrastructure. Facilities to continuously conduct quality checks and monitoring of soil is likely to be one key area of focus and this would include investment in mobile soil testing labs. The much bigger challenge is due to inadequate warehousing, limited cold storage, lack of low-wastage transportation etc. Unless that happens, supply chain constraints will plague the agri ecosystem. Government is expected to heavily incentivize the setting up of warehousing facilities, cold storages, primary pack-houses, reefer vans via PPP. It is time the government Budget puts a major focus on the presale and post-sale infrastructure as that could be a game changer for the agricultural sector.

Focus on research driven agriculture in Budget 2023-24

There is a lot of focus on R&D in industry, however similar enthusiasm is not visible in the case of agriculture. Let us look at some of the numbers. In India, the share of agricultural research spending as a share of agricultural GDP is less than 0.35%. That is abysmally low. China spends 0.80% and most of Asia and other emerging markets spend much higher than India does. A recent CGIAR report has underlined a cost-to benefit ratio of 10:1 from an increase in agricultural R&D. The positive impact of higher agricultural R&D spending is visible not only in soil quality and output, but also in agricultural incomes.

How about encouraging agri-entrepreneurs and Agritech?

When the Farm Bill was first proposed, the idea was to give a much wider leeway to the farmers to sell their products. The idea was that if the farmers got a wider market (beyond the traditional mandis) and the government supported them with funds and technology, it could result in a quantum leap. However, the Farm Bill had to put in the back burner under severe protests from the stakeholders. However, that should not still deter the government from using Budget 2023-24 as an opportunity to focus on technology and Agritech entrepreneurs. Here is what can be done in this case.

The government can start with use of technology to ensure more rapid sharing of critical farm input information. This can include data points like weather conditions, weather projections, all-India prices, mandi stocks etc. This can encourage the farmers to make smarter decisions based on real time data. The National E-market for selling agriculture produce through the futures market to lock in a futures price has also been on the back-burner. It is time the Budget 2023-24 gives a thrust to that idea once again. Above all, the government must come out with a dedicated policy for encouraging agri-start-ups in the market. There are several agri start-ups in implementation ideas in irrigation, information sharing, genetic seeds etc. This can go a long way in creating a symbiotic relationship between the farmer and the agri entrepreneur. Budget 2023-24 can make a meaningful start in that direction.