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To address persistent high food inflation, Finance Minister Nirmala Sitharaman could allocate more to agriculture. Last fiscal year, India grew by 8.2%, but surprisingly, agricultural growth declined from 4.7% in FY 23 to 1.4% in FY 24. During the COVID-19 period, agricultural growth had been quite satisfactory. The RBI has not been able to lower the policy rate for several quarters due to high inflation. One of the most important reasons for this persistent high inflation has been food prices, which have remained in double digits for a considerable period. The shortage of supply of many agricultural products compared to demand has driven this high food inflation. As a result, the people of India, particularly the bottom 60%, are the prolonged sufferers. Since a majority of people cannot participate in the market, this has been pulling down the aggregate demand level of the economy, in turn pulling back the entire economy. Consequently, India has not grown according to its potential.

In this context, the agriculture sector needs serious attention for the economy as a whole. Even today, more than 46.5% of the population is directly dependent on agriculture. Most importantly, by FY 2018-19, the share of people dependent on agriculture had decreased to close to 42%, but during and after the pandemic, it increased, which economists consider a backward movement of the economy.

Allocation for Agriculture

Finance Minister Nirmala Sitharaman identified nine key priority areas in her budget speech, placing agriculture at the top. However, the allocation for the sector was almost the same. The Budget allocated ` 1.52 trillion for agriculture and allied sectors, with the Ministry of Agriculture and Farmers’ Welfare receiving Rs.1.22 trillion. This is figuratively 5% higher than last year’s allocation (revised estimate) but is almost the same considering the impact of inflation.

Farmers and consumers benefit from several subsidies, such as food and fertilizer subsidies. Spending on MGNREGA, PM-KISAN, PM-Fasal Bima Yojna, and credit subsidies is included, with a total allocation of Rs.5.52 trillion for welfare and subsidies for consumers and farmers. This amounts to about 11% of the overall Rs.48 trillion Budget and 21.4% of the central government’s net tax revenue, according to Professor Gulati and Thangaraj.

Neglecting agriculture R&D risks growth and food security

Ashok Gulati, Professor, and Purvi Thangaraj, a consultant at ICRIER, raised important issues (Indian Express, 24th July) about the Budget allocation for agricultural development. First, they pointed out that Agriculture Research Intensity (ARI) has declined from a peak level of 0.75% in 2008-09 to 0.43% in 2022-23. ARI represents the percentage invested in R&D relative to agricultural GDP. The present Budget allocation indicates that ARI will further fall in real terms in FY 2025. This is not good news for the country’s food security and high food inflation, according to Gulati and Thangaraj. They mentioned that the marginal returns on investing in agricultural R&D are over 10 times. For example, an extra investment of Rs. 1,000 crore would produce ` 10,000 crore in terms of agricultural GDP. Such an investment could have pushed agriculture towards a higher growth trajectory.

Secondly, in India, food production generally means a diet rich in sugar and carbohydrates. However, there is a need to think of a diet rich in fiber and protein. The Budget has not addressed this matter, although there is an urgent need to transform agriculture to benefit both farmers and the population as a whole.

New Policies

First, a new policy has been declared: Jan Samarth-based Kisan Credit Card in five states. Secondly, special emphasis has been given to shrimp production and export, with finance allocated for this program through NABARD. Thirdly, the government will introduce a national cooperation policy for the overall development of agriculture. Fourthly, the FM said the government would promote digital public infrastructure in partnership with states. In this program, about six crore farmers and their lands will be entered into registries over the next three years. Additionally, a digital crop survey will be conducted in 400 districts. Fifthly, the government will take measures to increase the supply of fruits and vegetables in the market.

At the same time, food and fertilizer subsidies have been curtailed. The impact of this will be realized in the future.