Post #9 of Quarantine Series - An economic package for the Agriculture sector

Tranche 3.0 of the Finance Minister’s economic package gave me a feeling that I am watching Day 3 of a Test Match because the last announcement for the batsmen (i.e the farmer) on Day 2 was the starting point and focus area of Day 3 of the announcements. There were new batsmen of the team (animal husbandry, fisheries, bee-keepers, herbal cultivators) batting today and they held fort till the end of the day. However, today’s announcements were more of a long term solutions to address the concerns of the agriculture sector rather than an immediate action to help the agriculture community suffering from the pandemic.

Today’s announcement means that the aggregate amount has now reached Rs 17.67 lakh crs out of the stated Rs 20 lakh crs, meaning that a balance of Rs 2.33 lakh crs will be announced in the next few days (probably all analyst need to have patience like Rahul Dravid and hold fort for 2 more days).

A quick snapshot of today's announcement:

Announcements  on May 15	Amt (Rs crs)	Details	For what?
1)       Agriculture Infrastructure Fund	1,00,000	·     The government plans to create an infrastructure fund	·       For funding agriculture infrastructure projects like cold chains ·       Due to lack of adequate cold-chain and post -harvest management facility
2)       Micro food enterprises	10,000	·   To formalize the micro food enterprises, farmer producer organisations	·       The unorganized units  will be upgraded to improve their standards, integration with retail markets
3)       Fisheries	20,000	·   Under an existing scheme, Pradhan Mantri Matsya Sampada Yojana, the government will spend Rs 20,000 crs over the next few years	·       The spending will be done to improve and develop the marine and inland fisheries (including infrastructure)
4)       National Animal Disease Control Programme	13,343	·       Vaccination of the livestock	·       This will control foot and mouth diseases and brucellosis
5)       Animal Dairy infrastructure fund	15,000	·       An already existing fund which will get funding via NABARD	·       This additional funding is done boost the animal husbandry sector ·       Also drive private investment in dairy processing and cattle feed infrastructure
6)       Herbal cultivation	4,000	·       The spending will be done by the government over the next 2 years for cultivation of medicinal plants	·       Will get around 10 lakh hectares under herbal cultivation ·       Generate Rs 5000 crs of income
7)       Beekeeping	500	·   To spend to support the livelihood of beekeepers ·   The spending will be on infrastructure and implementation of standards	·       This will improve quality of crops and yields ·       Increase income of beekeepers
8)       Operation Green	500	·   To widen the ambit of an existing scheme named “Operation Green” by including all the fruits and vegetables	·       This will provide subsidy to the farmers to transport the fruits and vegetables from areas of surplus production to consumption centres
Total	1,63,343

Some key concepts:

Under 1) Agriculture Infrastructure Fund

a.    Who will fund this amount of Rs 1 lakh crs ?

Ans. The amount of funding will not be done by the Government of India, but will be done by National Bank for Agriculture and Rural Development. The clarity will be required on whether this funding will be via market borrowings or equity infusion into the NABARD. Most likely it looks like the former.

Under 2) Micro food enterprises:

a.     What are micro food enterprises/ farmer producer organisations?

Ans.  Micro food enterprises are manufacturers of packaged food products and having investments of less than Rs 25 lakhs for manufacturing entities and Rs 10 lakhs for services. Small and marginalized farmers come together and form an organisation called as farmer producer organisation.

b.    What is a cluster based approach?

Ans. A cluster is formed when several small firms come together and forms a hub. This is the exact example which the Finance Minister gave in her conference where she mentioned that commodities in which a state specializes will be identified and grouped together and formed into a cluster.  

Under 3) : Fisheries

a.     What is the Pradhan Mantri Matsya Sampada Yojana?

Ans. A scheme which was launched on July 5, 2019 aims to increase the fish and aquatic products through appropriate policy, marketing and infrastructure support. The idea is to build a robust fishery management framework.

Under 5) Animal Husbandry Infrastructure Development fund?

a.     What is this fund about?

Ans. This fund was created in March 2018 for the purpose of financing infrastructure requirement of animal husbandry sector with an initial corpus of Rs 2,450 crs. Today’s announcement will add Rs 15,000 crs into the already existing fund the money will be raised by NABARD.

Under 8) Operation Green

a.     What is the Operation Green scheme?

Ans. This is a scheme which was announced in Budget 2019 which will aid farmers to control the erratic fluctuations in the prices of tomatoes , onions and potatoes (TOP). In today’s announcement, the government has widened the definition from the TOP vegetables to all fruits and vegetables. Furthermore, the scheme states that it will provide 50% subsidy on transportation of the produce from surplus to deficient markets and 50% subsidy on storage.

What is the fiscal impact on the government?

The critical point to note in today’s announcement is not the actual cash outflow which the Government will undertake in one single year but how it will spread this across multiple years. For example, it has stated that the for herbal cultivation, the money will be spread across 2 years. Another example is the National Animal Disease Control Programe, where expenditure will be incurred across next 5 years.

Another important point to note is the outlay on different funds will not be done by the Government, but by the NABARD. Now, we have to wait for the details of how NABARD will raise the money (via equity or market borrowings)

Therefore, the impact on the finances of the government is not possible to calculate in FY21.

What are the 3 governance and administrative reforms announced by the Government ?

a.       Amendments to the Essential Commodities Act by which agriculture food stuffs including cereals, edible oils, oilseeds, pulses, onions are to be deregulated which means that any stock limit on these commodities will be imposed only under exceptional circumstances. In normal scenarios, there will be no stocking limit imposed on the producers producing these commodities.

b.      Agriculture Marketing Reforms where the Central Government plans to formulate a lawto provide:

a.       Adequate choices to farmer to sell the produce at the right price

b.      Barrier free Inter-state trade

c.       And build an e-trading framework

This will allow farmers to have more options in selling one’s agriculture produce not restrict oneself to only a few people in the APMCs.

c.       A legal framework to be created or farmers to engage with processors, aggregators, large retailers for producing those commodities which will provide assured returns.