Union Budget 2021: A transparent Budget

Ashok Gulati, Infosys chair professor for agriculture at icrier

The finance minister needs to be complimented for bringing transparency in the Union Budget, at least in agri-food space. The food subsidy was the biggest issue. Year after year, a substantial part of the food subsidy was being put under the carpet through increasing borrowings of Food Corporation of India (FCI), which had crossed `3 lakh crore. No one believed that the budgeted figure of `1,15,570 crore in FY 21 reflected the true picture of food subsidy. Now the FM has revised this figure for FY21 to `4,22,618 crore, a whopping increase of `3,07,048 crore. The revised estimate (RE) for FY21 is 3.66-times the budgeted figure, indicating almost all borrowings of FCI have been cleared. This is indeed a historic step towards transparency in the Union Budget. And, for FY22, the budgeted estimate is `2,42,836 crore.

Another major step for which the FM needs to be complimented is to clear off all the arrears of the fertiliser industry. Against the budgeted figure of `71,309 crore for FY21, the revised estimate (RE) is `1,33,947 crore, an increase of `62,638 crore. For FY22, things will smoothen with a budget provision of `79,530 crore.

The third biggest expenditure in agri-food space is Pradhan Mantri Kisan Samman Nidhi (PM-Kisan), which decreased from a BE of `75,000 crore in FY21 to a RE of `65,000 crore, and the same amount is now budgeted for FY22.

And there are other items like Pradhan Mantri Fasal Bima Yojana, which is budgeted at `16,000 crore for FY22, not much different from the RE of FY21 (`15,307 crore); interest subsidy on short term credit to farmers (`19,468 crore in FY22 against a RE of `19,832 crore in FY21), and so on.

Decoding Finance Minister Nirmala Sitharaman’s Union Budget 2021

For policy purpose, beyond the transparency in numbers, one has to note that there is a huge bias in allocating resources in agri-food space towards subsidies (food and fertiliser, PM-Kisan, crop insurance and interest subvention) vis-à-vis investments in agriculture, especially research and development (R&D). The allocation for agri-R&D is just a meagre sum of `8,514 crore in FY22 against a RE of `7,762 crore for FY21. This is bewildering as the marginal returns in terms of agri-growth from expenditures on agri-R&D are almost 5- to 10-times higher than through subsidies. India spends not even half of what a private global company like Bayer spends on agri-R&D (almost `20,000 crore/year). No wonder our growth momentum in agriculture remains subdued and India keeps spending on freebies with sub-optimal results.

Two major policy points need to be debated: (1) in food subsidy, FCI’s economic cost of rice is `37/kg and wheat about `27/kg. This economic cost is roughly 40% higher than the procurement price. Why not give a choice to the beneficiaries of the public distribution system for direct cash transfers to their accounts to the tune of procurement price plus 25%? This will create more diversified demand supporting diversification in agriculture. Further, in food subsidy, it is time to revise the issue prices for the beneficiaries. While antyodaya (most marginal) category can keep receiving grains at `2 or `3/kg, all others should pay at least half of the procurement price, if food subsidy has to be brought to manageable levels. Further, one should debate whether the coverage of food subsidy should be 60 or 67% population or should it be brought down to 40% of the population.

And (2) in the case of fertiliser subsidy, again, massive subsidisation of urea to the tune of almost 70% of its cost, is leading to its sub-optimal usage. It is time to move towards direct cash transfers to farmers based on per hectare basis and free up prices of fertilisers. This will help reduce leakages and imbalance in fertiliser usage of N, P and K, bring efficiency, equity, and environmental sustainability.
Overall, what is needed is that the expenditure on agri-R&D needs to be doubled or even tripled in next three years, if growth in agriculture has to provide food security at a national level, and subsidies on food and fertilisers need to be contained and cut down. Can our policymakers do it? Only time will show.