Critical analysis of interim budget 2019

 

With the election around the corner, the NDA government’s 2019 budget has played its trump card by laying emphasis on agriculture and middleclass.  The centre has laid extra eminence on the farm and rural sector with announcement of direct income transfer of Rs 6,000 to farmers, besides enhancing the outlay by over 43 per cent year-on-year to Rs 2.89 lakh crore for 2019-20. The increase comes to 30 per cent when compared to the revised budget estimates for 2018-19, which was Rs 2.22 lakh crore.

What is being given….

Budget 2019 has provided a combo of direct income support and allocation across agri and allied industries in Budget 2019. While direct income benefits are supportive for margin of staple consumption, steady push for the food processing industries is positive.

A set of policy initiatives was targeted toward lower to the middle-income class population. The urban lower middle class got a complete tax rebate for taxable income up to Rs 5 lakh which leads to Rs 18,500 crore stimuli for three crore middle-class taxpayers.

The BJP govt truly believes that agriculture is the main driver of the rural economy and there is a need to provide income support to farmers with small and marginal land holdings, who are facing problem of lower returns.

Measures were focused to target alleviation of rural distress. Assured income support for marginal farmers (Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) amounting to direct income support of Rs 6,000 per year (Rs 75,000 crore scheme) is one such step. This targets 12 crore small and marginal farmer families with land under two hectares.

While the math seems simple with Rs 6,000/- per head annual transfer, it is supportive for staple consumption but doesn’t amount to a quantum leap.

Presenting the Interim Budget in the Lok Sabha for 2019-20, Finance Minister Piyush Goyal said the government has earmarked Rs 75,000 crore for the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) in the total allocation of Rs 1.50 lakh crore for agriculture and allied activities. The rural sector has received Rs 1.39 lakh crore.

This income support will be transferred directly to the bank accounts of the farmers in three equal installments of Rs 2,000 each and the scheme would be funded 100 per cent by the Central government. The government has allocated Rs 20,000 crore for the PM-KISAN in the revised estimates of the current year. Also the government has allocated Rs 14,000 crore for the crop insurance scheme — Pradhan Mantri Fasal Bima Yojana for 2019-20 — as against Rs 13,000 crore a year ago.

According to Piyush Goyal, farm loans have increased to Rs 11.68 lakh crore in 2018-19. Total allocation for interest subsidy for short-term credit to farmers has been increased from Rs 15,000 crore for 2018-19 to Rs 18,000 for 2019-20. With this there will be a benefit of two per cent interest subvention would be provided to the farmers pursuing activities of animal husbandry and fishery who avail loans through the Kisan Credit Card (KCC).

The government has proposed to provide benefit of 3 per cent interest subvention for disaster-affected farmers for the entire period of reschedulement — from the earlier period of one year — besides interest subvention of 2 per cent. Centrally-sponsored schemes such as Pradhan Mantri Krishi Sinchai Yojana (PMKSY) Rashtriya Krishi Vikas Yojana, National Mission on Horticulture and Sub-Mission on Agriculture mechanisation have slight changes in their allocation for 2019-20.

The budget also gives incentives to the sunrise sector of India – The total outlay for the Ministry of Food Processing Industries is Rs 1,196 crore in 2019-20 as against Rs 1,000 crore in the revised budget for 2018-19. With allocation of Rs 1.92 lakh crore for the Food Ministry, out of which Rs 1.84 lakh crore has been set aside for food subsidy.

For the rural sector, the government has earmarked Rs 60,000 crore for the Mahatma Gandhi National Rural Employment Guarantee Scheme that aims at enhancing livelihood security of rural households.

The government had allocated Rs 61,084 crore for the scheme in the revised estimates for the current year from Rs 55,000 it had earmarked when the Budget for 2018-19 was announced. With the intention to break the urban-rural divide in the country, the government has tripled the Pradhan Mantri Gram Sadak Yojana (PMGSY) has been tripled. The allocation to the PMGSY has been enhanced to Rs 19,000 crore for 2019-20 from Rs 15,500 crore in the revised budget of current year.

There have been a few allocation changes for the agriculture allied sector. Budget allocation for aquaculture is higher than revised budget estimates of FY18 but lower than the FY18 budget proposal. Not surprisingly, fisheries stocks after having a positive move during budget speech slumped thereafter.

Dairy companies such as Parag Milk Foods, Prabhat Dairy, Hatsun Agro had a mixed reaction. Though five-year CAGR growth in allocation suggests continuing emphasis, the current allocation which is marginally lower than FY18 estimates is disappointing. There is special support of Rs 100 crore for state cooperative dairy federations but a closer look indicates this is diverted from the National Daily Plan subhead.

One-time separate enhancement of Rs 750 crore (from Rs 301 crore) allocation for Rashtriya Gokul Mission in the current year itself intended to upscale sustainable genetic up-gradation of cow resources. This could be positive towards for dairy companies focusing on owning dairy farms and focus on premium milk.

A large number of farmers, especially women working in dairy and fisheries, would be able to benefit from the proposed 2% interest subvention for loans taken through the Kisan Credit Card scheme which was earlier applicable only to crop loans. however, the dairy sector was also expecting income tax exemption for dairy farmers similar to that for the agriculture sector, but that did not happen.

Source: Ministry of Finance, Government of India

A steady focus on food processing industries

Last year, budget allocation for the food and distribution department had a 75 percent increase in compared to FY18 actuals. Revised estimates are in fact higher than that of budget estimates which means intended expenditure has been on track. This year, this is a step higher by 7 percent YoY to Rs 190,821 crore with a focus to set up cold storage chains. Further, budget allocation for food processing has been increased by 26 percent from the revised estimates.

Companies gaining attention in this space are HUL, ITC, Prataap Snacks, Venkys ltd, Jain Irrigation etc. One of the key FMCG Company to look at in this space is ITC, which is among the better-positioned company in the food processing value chain.

Chart: Budget allocation for food processing schemes (Rs. Crore); Source: indiabudget.gov.in”>http://www.Indiabudget.gov.in

Another additional focus which will boost the prospects for rural infrastructure is the focus on digital villages. Government targets 100,000 digital villages that would be connected through Wi-Fi. It will assist residents in entrepreneurship opportunities such as setting up cottage industries.

Companies like Dabur, Emami, and HUL, will have 40-50 percent sales from the rural economy and so can benefit from the rural infrastructure focus and improvement in disposable income. Among this, we remain constructive on Dabur and HUL. Across the board, there has been a positive commentary from the FMCG companies in the current quarterly result implying steady staple demand from the rural sector in spite of otherwise rural distress. In the case of HUL, for instance, growth continues to be led by demand in rural areas which is 1.3 times of urban.

Counterview

How Helpful Will Modi’s Farm Income Support Be? Prime Minister Narendra Modi’s government announced a direct income transfer scheme to provide support to small and marginal farmers as the farm sector has seen returns drop due to low food prices.

 

Well in actual, the idea of a direct income transfer to farmers has been adopted by Telangana, and more recently by Odisha. The budget proposal is an extension of this with some variations. In Telangana, farmers get Rs 4,000 per acre per season—that is Rs 8,000 per acre for two crops. The central proposal to pay every small and marginal farmer Rs 6,000 a year is considerably lower in scope.

The second difference is that the Telangana scheme was sold—how far it is functional is not known—as a means of financing capital. There was no way of determining whether it went to capital or to consumption. In the central proposal, no such distinction is being made. It is being seen simply as an income transfer—probably the more honest way of looking at it. That is if you are a farmer who owns less than two hectares, then you get this amount. The landholding limit is not there in Telangana. So, the central scheme is more focused on farmers with smaller landholdings. Therefore, it obviously costs the government much less.

The way Telangana did it is by looking at land records, and anyone who had land was given an amount matching with that. If you could show that you are an owner of certain amount of land, you got a certain amount per unit of land. That meant tenant farmers and agricultural laborers—or the poorest farmers—didn’t get anything. And then there were some people who had leased out their land or had cultivated it themselves while living in towns, but were still getting something.

That’s because:

  1. a) There are people who are farmers who don’t have land;
  2. b) There are people who have land and are not farmers.

The Government of India’s problem is that they have not even defined a farmer. So it’s not very clear whom they are going to give it to. People are not walking around saying that we are a farmer.

This will have to be done at the level of villages and states will have to find their own way of defining a farmer. It’s something which can’t be done very quickly. The problem with the central government’s implementation of the scheme is that they plan to make some payment by the end of this financial year—that is by the end of March. How they are going to select the farmers and do it is not at all clear. It’s ill thought out in terms of how you will define the farmer.

Landless Farmers will be left out an extension of this is that any definition of a farmer being difficult and likely to leave out the poorer guys who don’t own land, they might as well have gone to all rural households. What they have done is taken the number of operational holdings below 2 hectares, and that adds up to 12.5 crore farmer households.

If they had simply said that we will give it to all rural households other than those who have more than 2 hectares of land, they could have then looked at land records and weeded people out. This might have been a simpler way of doing it rather than saying that it’s only for farmers.

Of course, not everyone will do this, and Rs 6,000 is not that much of an amount anyways. But the point is that there are other ways around this. The direction of moving towards direct income support is appreciated. But the amount is too little and too late. This will not make any difference to distress of farmers. Rs 6,000 per annum are just a drop in the ocean. It does not make sense either politically or economically.

Budget Silent on Farm Reforms

ICRIER Farm scheme is a good beginning but Rs 6,000 is less than what people were expecting. In Telangana, they are giving much more. This grant of Rs 500 a month will help the very poor among farmers. But for instance the farmers in Punjab, who earn much more than that, it may not be of any reforms in agriculture. Nothing has been said about why the Maharashtra government backed out of APMC reforms. One Size Doesn’t Fit All There’s no single solution for all farmers in India. There has to be a differentiated policy for each region, and one has to study the context of each state and each region. For instance, farming is very different in Punjab and Bihar. For example, Bihar does not face any problem of water but Punjab is facing water scarcity. In Bihar, there are no mandis and infrastructure is poor.

There is a need for a different treatment for every state.

 

Rural Development: Allocations Are Unlikely to Relieve Distress

The interim budget for rural development department saw only a 5% increase from the revised estimates of 2018-19, which remained unchanged despite an Rs 4,000 crore increase for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).

A breakdown of schemes-wise allocations puts this change in perspective. The allocations for the Pradhan Mantri Gram Sadak Yojana (prime minister’s rural roads programme), in terms of budget estimates, have remained constant since 2016 at Rs 19,000 crore.

Similarly, allocations for MGNREGS after increasing 11% in the revised estimates of 2018-19, as per government reports, again fell by 1.8% to Rs 60,000 crore in the interim budget.

With expenditure on the scheme, including payments due, already at Rs 65,355 crore, and 2.04 billion person-days of work generated till date (out of a target of 2.3 billion), this allocation is unlikely to relieve rural distress.

Similarly, allocations for the Pradhan Mantri Awaas Yojana (PMAY-G, prime minister’s rural housing scheme) decreased by 13% in the revised estimates for 2018-19 and another 5% this year. This is despite allocations being less than the minimum requirement:

Between November 2016 and March 2019, Rs 58,900 crore has been allocated for the scheme, 24% less than the approved share. If to this we add the fact that not all funds allocated are released, it becomes clear that the money made available by the Union government is even lower.

This shortage is reflected in the delays in payments to beneficiaries. Of the beneficiaries who had completed construction between April 2014 and 31 December 2018, 1.04 million were yet to receive their final installment, Accountability Initiative found. With another 3.64 million houses to be completed and inspected between January 2019 and March 2019, it remains to be seen if government will meet its 10-million targets.

 

 

 

 

 

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