Step up agri-spending, boost farm incomes

News: The present budget (2022-23) has increased allocation towards the agricultural sector by 4.4%.

What is the issue with the current budgetary allocation for agriculture?

First, the current rate of increase in budget is lower than the current inflation rate of 5.5%-6%. According to the Food and Agriculture Organization (FAO) report, the government expenditure on agriculture in India is 7.3% of its total expenditure. But, India lags behind several low-income countries such as Malawi (18%), Mali (12.4%), Bhutan (12%), Nepal (8%).

Second, there is no visible increase in capital investment, which is more crucial than price support programs. For instance, Allocation for rural development was 5.59% in the previous Budget, which has been reduced to 5.23%.

Third, flow of funds towards important schemes has also been reduced. For example, allocation towards Market Intervention Scheme and Price Support Scheme (MIS-PSS) is 62% less than the previous budgets.

How Agriculture Orientation Index (AOI) ranks India?

One, AOI was developed as part of the Goal 2 (Zero Hunger) of the 2030 Agenda for Sustainable Development. It measures the ratio between government spending towards the agricultural sector and the sector’s contribution to GDP.

As per this index, India spends lowest towards the agricultural sector, which is not in line with the sector’s contribution towards GDP.

Two, India’s AOI is lowest in Asia and among several other middle-income and upper-income countries. Also, lower income African countries such as Zambia spend more despite being a landlocked country.

Three, India is an agrarian economy where a large population depends on it, but it holds only the 38th rank in the world while being one of the largest producers of several crops.

Four, larger spending is associated with greater productivity. For example, the total cereal yield in India is only around 3,282 kilograms per hectare compared to 4,225 kg per hectare in Asia. Eastern Asia has the highest cereal yield of 6,237 kg per hectare. In China, the average land holding size is lower than in India, but the crop yield is much higher than India.

What is the way forward?

First, there is need to increase government spending towards the agricultural sector to attain the sustainable development goals of higher agricultural growth and farm income.

Second, as suggested by National Commission on Farmers, there is a need to develop irrigation facilities, urban infrastructure, national highways, rural infrastructure, rural transportation facilities, and increase the number of markets. It will integrate small and marginal farmers into the agricultural supply chain to a greater extent.

Three, AOI suggest increasing investment in rural infrastructure, agricultural research and extension services, development of technology to enhance agricultural productivity and eradication of poverty in middle- and lower-income countries.

Source: This post is based on the article “Step up agri-spending, boost farm incomes” published in The Hindu on 9^th Feb 2022.