As the Union Budget 2024 approaches, the usual discussions around fiscal prudence and consolidation are expected. However, this also presents a critical opportunity to address necessary policy changes that could significantly unshackle India’s agriculture sector.
Rethinking the Minimum Support Price (MSP) Mechanism
The current reliance on the Minimum Support Price (MSP) as a primary tool for agricultural policy has its limitations. The total value of agricultural and allied output in India stands at approximately ₹56 trillion, with food grains accounting for only 17% of this figure. Despite significant expenditure, the government’s MSP procurement covers a mere 6% of the total agricultural output. This discrepancy highlights the inefficiency of MSP as a primary mechanism for price discovery and support.
Livestock contributes 31% to agricultural output, followed by vegetables, fruits, and spices at 26%, while fishing and forestry each account for 7%. The focus on MSP for food grains neglects the broader spectrum of agricultural produce, disadvantaging a significant portion of the sector.
Enhancing Direct Farmer-Consumer Interaction
One proposed policy change is to develop more mandis across states, facilitating a direct interface between consumers and farmers. Promoting urban haats and weekly village markets can help farmers sell directly to consumers, potentially leading to better pricing and reduced dependency on intermediaries.
States like Maharashtra and Bihar have already allowed trade in all farm commodities outside the regulated Agricultural Produce Market Committee (APMC) wholesale markets. Expanding this initiative nationwide, with the necessary infrastructure support from state governments, could revolutionize the agricultural market dynamics.
Strengthening Agricultural Value Chains
Despite discussions around Agricultural Value Chains (AVCs), there is a need for a clear regulatory definition to enable seamless financing. The working group on AVC finance recommended bringing all activities from input supplies to retail sales under a comprehensive regulatory definition. Accepting this recommendation could streamline financing for the entire value chain, enhancing efficiency and productivity.
Revamping the Kisan Credit Card (KCC) Scheme
The current Kisan Credit Card (KCC) loans are capped at ₹1.6 lakh without collateral. Given rising input costs, increasing this threshold for farmers with good credit history could incentivize better credit behavior and support farmers’ financial needs more effectively. Additionally, revising the ‘review and renewal’ mechanism of KCC loans to focus on interest repayment could provide further relief to small and marginal farmers.
Introducing a Livelihood Credit Card (LCC) Scheme
To further support rural households, the budget could unveil a Livelihood Credit Card (LCC) scheme. This multi-purpose loan would cover a rural household’s entire gamut of activities, easing the process of doing farming and allied activities. Such an initiative could boost rural consumption and overall economic stability.
Establishing a Comprehensive Credit Guarantee Fund
Creating an omnibus credit guarantee fund for the agriculture sector, similar to the one for MSMEs, could act as a credit accelerator. With an initial capital outlay of ₹12,000 crore over five years, this fund could ensure coverage for all fresh agricultural loans, including AVC financing, significantly boosting fresh agri credit.
Leveraging Mineral Resources for Employment
In addition to agricultural reforms, the budget could also focus on a comprehensive mineral strategy to generate employment. Despite India’s rich mineral resources, progress in mining these minerals has been slow. By acting on the recommendations of the 2023 critical minerals report, the government could enhance mining activities, creating jobs and stimulating economic growth in this labor-intensive sector.
A New Beginning for Agricultural Policy
The Union Budget 2024, the first of the new NDA government, presents a crucial opportunity to prioritize and implement transformative agricultural policies. By addressing the limitations of the current MSP system, enhancing farmer-consumer interactions, strengthening value chains, revamping financial schemes, and leveraging mineral resources, the government can unshackle the agriculture sector and drive sustainable growth.