Agri budget will not solve the agrarian crisis

The hype that surrounded the event failed to live up to its expectation. The budget does not confront the problems of agriculture sector — low farm incomes, production stagnation and more recently of high prices of essential commodities. It lacks many of the reform measures that are required to solve the state agrarian crisis.

The state foodgrains production has been decadent over the last decade. It has been exacerbated by the meteoric rise in prices of pulses, cereal and non-cereal products like eggs, poultry and horticulture produces in the last three years. The sector is capital intensive and is fast becoming knowledge intensive. Also, there is an urgent need to evolve a rational market system in which producers and consumers are treated fairly.

To tackle the agrarian crisis, the chief minister should have reformed the entire ‘farm production to consumer market’ supply chain with bold reforms and new ideas. He should have opened the sector to contract farming by adopting the cooperative model which would lead to consolidation of small land holdings. Introducing crop insurance would have mitigated many of the risks taken by farmers as well as reduced the number of farmer suicides. Providing export incentives to agro-companies would have boosted long term investment and introducing marketing reforms would have reduced the influence of middlemen. Instead, the budget is a continuation of old themes like low interest rates, revolving funds, free power and various other subsidies with promises to increase long term investment in the sector.

Stagnant production

Part of the problem over the last decade has been stagnant production and dwindling level of individual farm land holding. Growth rate has been under one per cent for over a decade and the primary sector’s contribution as a percentage of state GDP has steadily declined to 15 per cent. Average yields of most crops in the state have been well below the national average. About 60 per cent of the state population is still engaged in farming. And many farm land holding are less than 2 hectares. The agriculture budget proposals of making crop loans available at one per cent, infrastructure fund of Rs 500 crore, revolving fund of Rs 1,000 crore, power subsidy to the tune of Rs 3,900 crore combined with subsides to overcome production stagnation and provide assistance to small farmers have all been tried and tested in the past that have not yielded tangible results.

The other measure taken in the budget — increase in Value Added Tax (VAT) from 13.5 to 14 per cent is likely to add to the general inflationary pressure. Wages, transportation costs and prices of many essential items are likely to increase which will ensure a hike in cost of living for most citizens. With the chief minister intent on wanting to be the first state finance minister to present a Rs one lakh crore state budget, future tax reductions are unlikely. In order to fulfill his ambition, additional resources of Rs 15,000 crore needs to be mobilised which means a VAT rate hike of around 3.5 to 4 per cent in the remainder of his term. In the current scenario, people are unlikely to get a respite from skyrocketing prices of essential commodities anytime soon.

Budgets are an exercise of allocation of scarce resources to projects that will enhance the welfare of a maximum number of people. While the focus on agriculture is a welcome step, the budget fails to usher in an era of reforms that would have prepared the state farmers to confront and navigate the challenges of 21st century successfully. By continuing many of the past programmes and re-packaging old ideas as an innovative agriculture budget, it is apparent that this effort of the chief minister is nothing but a smokescreen aimed at hoodwinking the farmers and people of Karnataka.