Union & state budgets need to place equal emphasis on sector-wide improvement & individual farmer-centric measures

In recent decades, the crisis in the agriculture and allied sectors (AAS) and the viability of smallholder farming have been at the centre of public and policy discourse. In response, the Union Government has laid policy focus on doubling farmers’ income and pursuant to this, public expenditure on agriculture and allied sectors has been stepped up substantially since 2019-20.

Along with this increased outlay on this sector in the Union Budget, the extent of allocation in (all) state budgets has also been sustained at around 4 per cent during the same period. But this has been quite uneven across states.

Although some of the poorer states such as Assam, Jharkhand, Uttar Pradesh and Bihar are highly dependent on the agriculture sector, they have not been spending adequate resources on it through their annual budgets. In such a scenario when some states are unable to prioritise their spending on agriculture in spite of it being a state subject, the Union government’s outlay on this sector assumes more importance.

The recent increase in allocations for agriculture in the Union Budgets and some state budgets, therefore, are much-needed stimuli for farmers coping with climatic adversities, price volatility and increasing cultivation costs.

More priority to individual farmer-centric support

Public expenditure in agriculture through budgets can be divided into two categories. The first provides individual farmer-centric support (direct income support, subsidies, risk cover). The second category delivers public goods that enhance the overall capacity through sector-wide improvements in infrastructure and agricultural practices (research and extension, quality inputs, mechanisation, post-harvest management, institutional support).

The Union Budget outlays on agriculture have signalled a high priority to individual farmer-centric support. This has, primarily, been in the form of two schemes: Pradhan Mantri Kisan Samman Nidhi Yojana (PM-KISAN) and Pradhan Mantri Fasal Bima Yojana (PMFBY).

These two schemes, along with Interest Subvention on Short Term Credit scheme, which provides direct monetary transfers to farmers, constitute around 73 per cent of the total allocations for agriculture and allied sectors in Union Budget 2023-24.

On the other hand, sector-wide support measures, through schemes such as Rashtriya Krishi Vikas Yojana (RKVY), Krishionnati Yojana, among others, collectively account for around 27 per cent.

Composition of Centre’s budgetary expenditure on agriculture & allied sectors (%)

Note: “Individual farmer-centric direct support measures” include PM-KISAN, Interest Subvention Scheme and PMFBY. “Sector-wide support measures” include all other schematic and institutional expenditure on AAS. Source: Walking the Tightrope: Analysis of Union Budget 2023-24, Centre for Budget and Governance Accountability (CBGA), New Delhi

The increase in the budget envelope for agriculture and allied sectors in recent years has accorded higher priority to “individual farmer-centric direct support measures”.

This pattern of budgetary provisioning is also reflected in some of the state budgets. In some states such as Telangana, Chhattisgarh and Odisha, the total budgetary allocation for individual farmer-centric direct support measures surpasses the total budgetary allocation for sector-wide support measures.

However, closely examining the nature and composition of allocations for agriculture is important to understand their long-term implications for agricultural growth.

There is obviously an urgent need to provide direct financial support to farmers to subsidise their growing input costs and attend to the growing risks of climate vulnerability.

However, it will be a concern if both Union and state governments start according higher budgetary priority only to direct support measures. Priority to sector-wide support measures is equally essential to pursue long-term and sustained improvements in agriculture and ensure the viability of farming as an occupation.

One of the factors that may be favouring the prioritisation of individual farmer-centric measures over the sector-wide support measures is the better utilisation of allocated funds under the former than the latter. Many states, particularly the poorer ones, could not contribute their share of matching grants under centrally sponsored schemes (CSS), which resulted in underutilisation of funds released from the Centre.

Most of the CSSs, such as RKVY, demand a grant of 40 per cent from states (as against 100 per cent contribution by the Union government before 2015-16). This is due to the implementation of recommendations by the panel on the rationalisation of centrally sponsored schemes in 2015.

Restructuring of central schemes

In addition, similar to last year’s Union Budget, a series of changes have been proposed in schematic allocations for sector-wide support measures. After RKVY was restructured last year, Union Budget 2023-24 has merged 10 existing schemes into the Krishionnati Yojana.

Consolidation of these schemes will likely increase the quantum of funds available to a basket of state-level, localised interventions rather than having numerous schemes with meagre outlays. But merging these interventions is also likely to impact the existing institutional framework for alternative agricultural practices.

Schemes such as Pradhan Mantri Krishi Sinchayee Yojana, National Food Security Mission, Rainfed Area Development and Climate Change programme, Sub-Mission on Agricultural Mechanisation, among others that have been subsumed, specifically address the challenges of rainfed farming. Financial outlays on these merged schemes have also not been laid out in Outcome Budget 2023-24, which makes tracking the progress of these schemes difficult.

However, in the latest Union Budget, there seems to be some initiatives to enhance sector-wide support measures such as introduction of a National Mission on Natural Farming and upgrading of Primary Agricultural Credit Societies.

Shrinking base of beneficiaries in individual farmer-centric support

In the latest Union Budget, allocations for both PM-KISAN and PMFBY have declined. It has been mentioned during this year’s budget speech that 114 million farmers benefited from the PM-KISAN scheme. If one assumes that the same number of farmers are to benefit from the scheme in 2023-24, then a budgetary allocation of Rs 68,400 crore is needed for the scheme.

Outcome Budget 2023-24 mentions a targeted transfer of Rs 67,694 crore to the destination banks. But the Budget at a Glance document attributes the downward revision in the budget for the scheme to reduced beneficiary base. This clearly indicates that coverage of the scheme will be lower in 2023-24.

Untangling budgetary outlays on agriculture foregrounds the need for a redesign of both Union and state budgets that lays equal emphasis on both sector-wide improvement and individual farmer-centric measures.

To this end, an inclusive budgetary paradigm that caters to the marginalised sections of the farming community such as women, landless, tenant, small and marginal farmers and agricultural workers, is the need of the hour.