May 4, 2022

View: Agriculture sector may benefit from a boost if policy decisions address some current challenges

The constitution of the Union’s budget is carried out with mixed signals. We are optimistic about the resumption of growth and the worst is behind us. Yet the shadow of Covid looms. Budgets are a balancing act and this one is no exception except with more variables to manage. Some of these include the buildup of inflationary pressures, high global crude oil prices, and universal immunization funding. The past few years have shown the resilience of the agricultural sector, despite challenges from rising costs and demand disruptions. In fact, it provided the silver lining during Covid with a sustained increase in GDP, as well as a cushion to absorb large numbers of displaced urban workers.

Some of the challenges facing agriculture that can be resolved on February 1 include the imbalance in the use of fertilizers, the lack of incentives for research and development (R&D) from the private sector, a subsidy regime skewed on agricultural inputs, cultivation of water-intensive crops affecting groundwater levels, limited precision agriculture and agricultural mechanization, and inadequate public-private participation in extension initiatives. The following policy decisions could address these challenges.

Prices for water-soluble fertilizers have increased by more than 50%. This has created a big hurdle for farmers, even though soil nutrition is the most effective. The Indian government is expected to provide ocean freight subsidy to importers to partially cover the costs. There should also be uniform TPS rates for all major, minor, micro and combined soil nutrients. This will help achieve a balanced diet.

The development of climate-resistant and nutrient-rich crop varieties, the development of new safer pesticides, low-cost mechanization, etc., are areas that require R&D efforts. This involves both high costs and high risks. The GoI needs to partner with the private sector and provide financial support so that these efforts can be undertaken. The 200% weighted deduction of R&D expenditure should also be reinstated.

The increased cost of cultivation should be addressed by reducing the cost of agrochemicals for farmers. A lower GST rate should be set for the domestic market (12% or 5%) in line with seeds (0%) and fertilizers (5%).

Planter Punch

The Indian government is expected to improve irrigation coverage in various states by implementing projects that have been in the pipeline for a long time. Adequate funds should be allocated and an audit system to further improve micro-irrigation (drip and sprinkler) should be introduced. Limits on micro-irrigation subsidy programs should be removed.

Cooperative hiring of agricultural mechanization equipment through accelerated depreciation and no service tax, etc., should be promoted. Import duties should be reduced on agricultural tools that are not currently made in India.

The sugar industry deserves special mention. The Indian government has taken significant proactive measures that have benefited the entire value chain. Farmers get a remunerative price and sugar mills are supported by the Minimum Sale Price (MSP) for sugar. In addition, encouraging the use of ethanol and crushed cane as fuel for renewable energy (RE) has resulted in export incentives, green technologies and foreign exchange savings. These measures have contributed significantly to the growth and prosperity of rural India.

Today, agriculture generates 3,000 MW of renewable energy and produces 2.4 billion liters of ethanol, a green fuel, making this sector a major contributor of bioenergy. Three additional steps will provide long-term stability.

Bioenergy poles: Like the ethanol initiative, BioCNG, or compressed biogas, can be a game-changer. Petroleum marketing companies promote the consumption of BioCNG and encourage entrepreneurs. However, transporting BioCNG from rural consumption locations to urban consumption locations requires additional costs, which negatively impacts yields. The GoI could allow a 100% offtake of the production by the effective reimbursement of the freight on BioCNG to the consuming stations. In due course, as consumption picks up in smaller towns, this will no longer be necessary.

Agri-food poles:
The sugar industry can play a central role in revitalizing the agro-food sector. Over the years the mills have established their agricultural value chain and there is year-round engagement with the farming community. They also have the basic infrastructure readily available for food processing – land, labor, machinery and production capacity. The industry produces its own green energy, which would be vital for the operation of the cold chain infrastructure, in addition to its use in processing.

Cane and Able

Government of India should consider extending Pradhan Mantri Kisan SAMPADA (Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters) Yojana (PMKSY) to sugar factories for setting up mega food parks, cold chains and infrastructure for agro-industrial clusters.

Currently, sugar and ethanol are controlled by the Ministry of Food, while sugar cane is controlled by the Ministry of Agriculture. Sugar cane research is managed by several central agencies, while cane development activities are controlled by state departments. Smooth and effective coordination between various central government departments, state governments, research organizations, industry associations and sugar mills is required. Therefore, a nodal agency such as a National Sugarcane Development Council should be formed. Its mandate will be the sustainable development of sugar cane and will bring together all stakeholders under one roof.