Budget Expectations: Agriculture Sector

22 Jan 2024 , 08:01 AM

INDIAN AGRICULTURAL AT CROSSROADS

It would not be too far off to say that Indian agriculture is at crossroads. It is in a state of transition, but many thing don’t appear to change. There has been a surge of AgriTech start-ups in India that have contributed to the use of cutting edge technology in agriculture. At the same time, the Indian agriculture sector remains substantially dependent on weather patterns. India has one of the highest area under agricultural cultivation in the world (much bigger than China). 

However, India’s agricultural output lags that of China, due to the much higher agricultural productivity that China manages to deliver on a consistent basis. Indian agriculture contributes just about 15% to the GDP or GVA of the Indian economy, but it employs more than half the Indian workforce. It is in this collection of dichotomies that the Union Budget 2024-25 provisions on the agriculture front assume significance. 

AGRICULTURAL BACKGROUND TO BUDGET 2024-25

Indian budgets need to constantly invest and spend on agriculture considering how critical they are to the Indian economy and to the much larger goal of food security. How big is agriculture on the basis of the First Avance Estimates (FAE) for FY24 released in the first week of January 2024? Out of the total Gross Value Added (GVA) of Rs157.82 trillion for the Indian economy as a whole, the GVA of agriculture sector stands at Rs22.75 trillion; which is about 14.41% contribution of agriculture to the total gross value added. 

However, it must be noted that while the GVA for FY24 is expected to grow at 6.9% overall, the GVA of agriculture is likely to grow at just about 1.8%. If you look at the same GVA data in nominal terms, the share of agriculture is slightly higher. Out of the overall nominal GVA of Rs267.12 trillion, agriculture nominal GVA accounts for Rs48.09 trillion; or 18.00%. That means, agricultural inflation impact was much higher compared to other segments of GVA.

AGRICULTURAL SECTOR EXPECTATIONS FROM BUDGET 2024-25

What are the themes that the agricultural sector expectations of the Union Budget are built around? One is enabling the rapid digital adoption in agricultural. Agricultural growth needs to be accelerated through the skilful use of technology. The other theme is to focus on the food value chain, rather than just cropping. This must encompass crops, horticulture, sericulture, forestry, fishing etc. Thirdly, agri exports are now in double digits as a sharp of total exports and growing. The budget needs a comprehensive policy on boost agri exports. Last but not the least, India still loses a lot of agricultural output due to poor infrastructure at a post-harvest level. It is not just enough to produce crops. They have to be stored, sustained, and brought to the mandis on time. Here are the key expectations for agriculture sector from Budget 2024-25.

1. Let us talk about the technology front. There are huge applications of emerging technologies like artificial intelligence, IOT and drone technology in agriculture. The budget needs to incentivize the rapid adoption of technology-driven modern agricultural practices like crop mapping, precision farming, breed improvement, automated tracking of crop movement, wastage pre-warning system etc. 

    

2. The government of India has not only encouraged use of digital technologies in agriculture, but also incentivized the same. There is an Agriculture Accelerator Fund (AIF) to foster farmer-centric solutions by leveraging technology.  The government is also expected to give more incentives that provide services like educating farmers, enable robust data collection, insights based on data analysis for agri sector etc. 

    

3. One of the challenges faced by the farmers is the lack of awareness of weather, soil mapping, use of drone imaging etc. The Budget 2024-25 can create a cooperative mechanism to encourage more start-ups to offer solution to agri start-ups that enable such rapid dissemination of information and analysis of data. This also reduces the dependence on the vagaries of monsoons. 

    

4. In the last few years, the minimum support prices (MSP) for most crops have been made extremely attractive and lucrative for farmers. However, the farmers still find it tough to get the best price at the mandis due to lack of bargaining power. The extension and incentivization of the Electronic National Agricultural Market (E-NAM) will be a good measure wherein agricultural produce can be sold by the farmers in the form of forward contracts and the government can throw in a contract guarantee to make the entire process flow more meaningful and profitable for the farmers.

    

5. The other set of expectations from Budget 2024-25 is on putting more resources into the food value chain, which is also called the farm to fork approach. One of the ways to boost agriculture sector is to invest in the front end of the value chain, which will reduce the losses and provide a ready market for the farmers. In the last 20 years, the food processing industry has seen FDI flows of over $12 billion and annual exports of over $25 billion. The budget 2024-25 is looking at more schemes like the PMKSY and the PMFME to provide key inputs to the upper end of the food value chain. 

    

6. One of the challenges to the downstream food processing sector is the high cost of infrastructure. The Budget 2024-25 can focus on establishing clusters and micro units that can centralize the use of shared infrastructure and turn out more cost effective. Such clustering will also enable better bargaining power and also better pricing.

    

7. In the non-food cropping sector, the start of the value chain can be incentivized to move up the value chain to ensure better control over raw materials and logistics. For instance, a dairy farmer can go beyond just supplying milk in the market. They can look at higher value downstream products like curds, paneer, sweets, butter, and cheese. Similarly, fruit farmers can also go up the value chain to downstream segments like pulp, juice, ketchup, jams etc. One big focus in such cases must be the quality standards since it can be counterproductive if the highest quality standards are not maintained.

    

8. In India post-harvest losses range anywhere between 20% and 40% depending on the product. Specific cases of farmed products like milk, fish, vegetable, and eggs have a very high rate of wastage. This can be substantially, if not fully, resolved through the investments in solid post-harvest infrastructure. For starters, the government can encourage and incentivize the creation of multi-commodity cooling and grading centres near mandis, ports, airports etc to ensure wastage and spoilage are reduced sharply.

    

9. Budget 2024-25 can encourage and incentivize the setting up of cooling units near ports and airports across states with uniform and stringent quality control measures. In addition, the investments in refer vans and solar-powered cooling units can go a long way in reducing the wastage post the harvest and also offer a solution that is green in nature. Infrastructure syndication can also be one method of doing the same.

    

10. The last major theme for Budget 2024-25 is about agricultural exports. Today India’s agri exports are to the tune of more than $55 billion, which is dominate by the exports of rice, marine products, and sugar. The first and last product are sensitive products and are subject to frequent curtailment of exports to maintain domestic price stability. Hence, the budget needs to focus more on the less sensitive exports segments.

     

11. One of the things that the budget can and must encourage is demand driven production by farmers. This can be done by use of scientific methods of demand mapping, which can give clues about when demand gets clustered. The next system is to catalyse a production system that is flexible and scalable at short notice to make the best of demand spikes in India and globally.

     

12. Any agricultural export is subject to very stringent permission at most ports. For instance, India has seen some of its shipments rejected due to quality concerns. One thing the government must push in Budget 2024-25 is by defining and encouraging the agri companies to adhere to the highest level of quality assurance and standards. This not only includes incentives for domestic standard adherence, but also to unique global standards that are set out for certain products.

     

13. Promoting exports in a competitive market is not easy and most exporters being small-sized businesses, do not have the pockets to undertake such deep marketing and branding efforts. One thing that the government can do in this budget to have a dedicated brand promotion fund, to help such export driven industries to establish such facilities to boost the global demand for agri products. 

Indian agriculture is caught in a time warp between the old and new. It has adapted to new technologies but remained steeped in tradition in terms of its systems, markets, and the overt dependence on monsoons. That needs to change and the Budget 2024-25 is the right opportunity to trigger that shift.