A Step Towards Transparency

Context: the expenditure on agri-R&D needs to be doubled or even tripled in the next three years if growth in agriculture has to provide food security at a national level and subsidies on food and fertilisers need to be contained.

Budgetary measures by the government to bring transparency in the Agri-food sector

• Cleared almost all borrowings of Food Corporation of India (FCI).
• Cleared the fertiliser industry’s arrears.
• Rationalised Income support schemes: Like Pradhan Mantri Kisan Samman Nidhi (PM-Kisan).
• Budget Estimates for Insurance and credit for farmers is based on Revised Estimates for FY 2020-21: Like for Pradhan Mantri Fasal Bima Yojana.

Shortcomings of the budgetary measures: biased towards subsidies as opposed to Investments (especially Research and Development (R&D))

• Low allocation for agri-R&D: It is Rs 8,514 crore in FY 2021-22 against a Revenue Expenditure (RE) of Rs 7,762 crore in FY 2020-21. 
  • Benefit of high expenditure on agri-R&D: Marginal returns in terms of agri-growth from expenditures on agri-R&D are almost 5 to 10 times higher than through subsidies. 
  • India spends not even half of what a private global company like Bayer spends on agri-R&D (almost Rs 20,000 crore every year).
  • Problem with low expenditure on agri-R&D:
    • India’s spending is already very low: Not even half of what a private global company like Bayer spends on agri-R&D.
    • Growth momentum in agriculture will remain subdued.

Way forward: For the development of the Agri-food sector

• Provide direct cash transfers to public distribution system’s beneficiaries:
  • To reduce FCI’s economic cost: at present, it is roughly 40% higher than the procurement price.
  • Helps in more diversified demand which, in turn helps diversification in agriculture.
• Revise the issue prices for beneficiaries of food subsidy: The “antyodaya” (most marginal) category can keep receiving grains at Rs 2 or Rs 3/kg while others should pay at least half of procurement price.
• Reduce population covered by food subsidy: From present levels of <60% of the population to 40%.
• Direct cash transfers to farmers for purchasing fertilisers: As the present, massive subsidisation of urea is leading to its sub-optimal usage.
  • It will help reduce leakages and imbalance in NPK (nitrogen, phosphorus, potassium) usage and lead to efficiency, equity, and environmental sustainability.
• Triple the expenditure on agri-R&D in the next three years: to provide food security at a national level and to contain subsidies on food and fertilisers.