Budget Series 2018-19 : #1 Impact on Indian Agriculture Industry

By TJEF Editor Vasudeva Kamath

Challenges faced by the Industry

  • Large number of marginal farmers in India: There are a large number of marginal farmers in the country due to the fragmented land holdings. The fragmentation is to such an extent that it is economically unviable to cultivate crops by using mechanized farming methods.
  • Lack of storage facilities: About 10% of the agricultural produce gets wasted due to lack of proper storage facilities in the country. There also the problem degradation of the quality of produce due to improper storage.
  • Lack of proper irrigation channel: Indian farmers are largely dependent on the monsoon for irrigation. There is no proper implementation of irrigation facilities to grow the crops around the year.

Expectations from Budget

  • The budget amount allocated to the agriculture sector was to the tune of Rs.1.5 lakh crores. The expectation this year is at least 8-10% increased allocation.
  • Establish fund to guarantee credit to encourage investment in agriculture
  • Allocate more funds for crop insurance schemes
  • Increase spending for dams and canals, micro-irrigation systems
  • Provide subsidies for building cold storage to avoid wastage of perishable crops

Budget Announcements

  • Government has decided to keep minimum support price (MSP) for all unannounced Kharif crops at least one and half times of their production cost after declaring the same for the majority of Rabi crops
  • The government has allocated a total of 1,87,223 crores, which is 24% more than what was allocated in the previous financial year.
  • The volume of credit for agriculture is proposed to be at Rs. 11 lakh crores from the present Rs. 10 lakh crores, thus catering to the expectation from the budget.
  • A new Scheme ‘‘Operation Greens’’ was announced with an outlay of Rs 500 Crores to address the price volatility of perishable commodities like tomato, onion and potato
  • Agri-Market Infrastructure Fund with a corpus of Rs.2000 crores will be set up for developing and upgrading agricultural marketing infrastructure
  • Rs 200 crores allocated for organized cultivation of  highly specialized medicinal and aromatic plants
  • National Bamboo Mission will be initiated with an outlay of Rs.1290 crores to promote bamboo sector in a holistic manner
  • Ministry of food processing has got an almost double increase in allocation from Rs. 715 Crores to Rs. 1400 Crores
  • Under  Prime Minister Krishi Sinchai Yojna, 96 deprived irrigation districts will be taken up with an allocation of Rs 2600 crores
  • To realize the full potential of Indian agricultural exports (about USD100 billion), the export of Agri-commodities will be liberalized

Conclusion

This year’s budget is termed as the “Next Green Revolution” by many experts. With normal monsoon forecasted for the year, there would be a good pickup in agricultural activities during the sowing season. We can expect a significant contribution from agriculture sector towards the GDP this year.

EFFECTS OF DEMONETIZATION ON INDIAN AGRARIAN ECONOMY

By Pushkar Moni and Purvee Khandelwal

Introduction

The currency (notes) is the most liquid legal tender issued by the RBI which can be used to extinguish a public or private debt. The Indian economy, until 8th November 2016 had an estimated ₹14.18 trillion worth of currency notes in circulation, making India predominantly a cash-based economy. The Indian agrarian economy which is also primarily cash based, and is highly unorganized, has emerged as a source to route black money, back into the system both in terms of tax exemptions and channelling funds to create legitimate funds [1]. According to the Central Board of Direct Taxes, only 3.81% of the total Indian population pay income taxes and it is suspected that enormous sums of money are tied up in illegal transactions that are unaccounted for. These illegal transactions not only form a parallel economy in the country but also distort the actual Indian economy. As a countermeasure, the Government of India hitherto referred to as GoI, enacted to demonetize (strip a currency of its legal status) its currency notes of 500 and 1000 denomination. These denominations accounted for 86% [2] of the total currency in circulation. This paper intends to highlight the effects of demonetization on the Indian agrarian economy.

Impact of Cash Crunch on Agriculture

Agriculture is primarily a cash based sector with large capital input. This sector contributes about 15% to the Indian GDP and employs about 49% of the total workforce. The real growth rate of the sector is reported to be 1.3% [3]. This low growth rate is usually attributed to the droughts experienced in the past two years.

Continue reading “EFFECTS OF DEMONETIZATION ON INDIAN AGRARIAN ECONOMY”

Expectations from Union Budget 2017-18

Union Budget 2017 is the most looked forward issue for everybody associating with the Indian economy. This year budget will be announced one month earlier compared to the traditional practice of declaring it on the last day of February, because, Government wants to complete the spending and tax proposal before starting of new financial year.

Here are the major expectations from NDA’s budget:

  • Change in Tax Administration:

Data shows that only 1% of the Indian population pays income tax, whereas only around 2% filed income tax return. So, to take more people into taxpayers’ net, Government might increase the tax level from Rs. 2.5 lakh per annum to Rs. 4 lakh per annum. Along with that corporate tax may get reduced to boost economy. Also, according to the CEO of Mindtree, Rostow Ravanan, Government needs to streamline and update the process of incentives given to individual taxpayers to have more inclusion. GST’s implementation schedule may also be announced in this budget.

  • Encouraging Digital Payments and Proper Implementation:

In the process of creating a supposedly cash-less economy, this budget is expected to incentivize digital payments via plastic money. In a country of 1300 million, banking penetration is only 55% (although 19% of them are dormant), which translates to people having 700 million debit cards but only 24.5 million credit cards. So, the budget is expected to address the huge opportunity. To promote cashless transaction, applications are expected to be part of this budget. Benefits of banking through payment banks are also expected. Infrastructures are expected to be more developed to incorporate SMEs in digital India.

  • Real Estate:

Due to demonetisation and Real Estate Regulatory Act, 2016 was not smooth for major GDP contributors of India’s real estate sector, because, cash crunch made problem for buying material, construction etc. Relaxation in income tax rate, hike in HRA deduction is expected from this budget.

  • Revival of Private Investment:

The government is expected to take major steps to address the issue to decreasing private investment. Demonetisation may not affect the private investment directly, but it has kept the investment in abeyance, which will delay the recovery in private investment. So, domestic consumption, purchasing power and cash-driven transaction in the rural economy need to be boosted by the policies taken by the Government in this budget.

  • Agriculture:

Farmers were not able to sell their khariff crops due to unavailability of notes after demonetisation. So, they are expected to get some benefit from this budget under Pradhan Mantri Fasal Bima Yojana. It is also expected to provide a measure for cashless transactions and digital payments in the farming sector so that seeds, fertilizers, and other necessary equipment can be easily be purchased by farmers. Also, import duty on vegetable oil needs to be increased to help domestic refining industry, which is currently facing a crisis of under-utilization. The government can also think of introducing FDI in the agriculture sector to boost the investments and technical expertise. The budget is expected to introduce a framework for more transparent procurement of grains by official agencies. It may include the system of direct procurement from farmer to prevent exploitation by placing suitable safeguards.

  • Housing Loan:

The government announced Pradhan Mantri Awas Yojna (PMAY) aiming for housing for all. Then, it is expected that government would increase the tax deduction on the interest paid on housing loan. An extra benefit is expected beyond the interest payment of Rs. 2 lakhs per annum.

  • Social Sector:

Gross enrolment ratio in India is only 23%, which is well below the world average. So, to address that, the government is expected to have more allocation (more than 3% of GDP) in the education sector. Increasing the internet coverage would be an effective step to address this gap to educate the students of rural India. Along with that, the learning gap between academic curriculum and practical arena needs to be addressed by imparting more technology and collaboration in between educational institutes and industries.

This budget may announce a new cess for social security of around 20000 railway coolies. It is expected that every railway ticket would cost 10 paise more to generate around Rs. 4.4 Crores per year to provide the basic minimum facilities like PF, pension etc. for the coolies.

  • Railway:

Ending the 92 years-old tradition, the Government decided to merge railway budget with the union budget. Railways is expected to get around . 1.3-1.4 Trillion rupees this year to spend in building over-bridges, under-bridges, track renewal, freight corridors etc.

At last, the share of India in global GDP has increased from 4.8% in 2001-07 to 7.0% in 2014-15 according to the Economic Survey 2016. So, it is very critical for the finance ministry to make a roadmap to achieve the country’s goal – to be a global economic power with sustainable growth rate.


rooptejaRoopteja Tamatam, a student of Shailesh J. Mehta School of Management, IIT Bombay, is a finance enthusiast and an avid follower of western classical music and is looking to carve a unique career path amalgamating both of his passions.


sayanSayan Poria, a student of Shailesh J. Mehta School of Management, IIT Bombay, is a finance enthusiast, opinionated and avid follower of recent political and socio-economical affairs.