By Prashansa Srivastava
The Finance Minister Arun Jaitley is expected to unveil his last full year budget on 1st February 2018 for the fiscal year 2018-19, beginning on 1st April 2018. The government is expected to come out with a populist budget in order to garner political support in the lead up to the 2019 General Elections. For agriculture, an increase in funding and resources is predicted considering the mass discontentment among farmers.
Pre-budget predictions
The ruling Bharatiya Janata Party has not done as well as it had hoped in the state elections of Gujarat and Himachal Pradesh. In Gujarat, they lost significant support in the farm-dominated area of Saurashtra region. This has shifted the focus back to the woes of the rural economy, encouraging the government to undertake pro-farmer policies. The Budget will thus bring a significant spotlight to the problems of the common man and those in non-urban areas.
An increase in funding is predicted in agri-education so as to achieve the goal of doubling farmers’ income by using technology and innovation. It is also considering initiating programmes on use of sensors in agriculture, build and transfer post-harvest technology, use of animal cloning for commercial application, genome editing in select crops and bio-fortification.
The agrarian economy has been suffering from falling incomes and lack of employment opportunities. Annual farm growth has dipped to 1.7 percent in the three months ending September, mainly due to lower output and non-remunerative prices. The next budget will thus attempt to soothe these concerns by focussing on rural infrastructure and farmers’ jobs, with the allocation to farm and rural development ministries witnessing a hike.
Agricultural woes
Arun Jaitley has previously said the country’s economic growth is not “justifiable and equitable” unless the benefits are “clear and evident” in the farm sector. To achieve this inclusive growth, the budget needs to undertake several policy measures related to irrigation, crop insurance and agricultural credit. Measures must be taken to ensure that farmers receive remunerative prices for their product and these measures are accessible to farmers.
The rural economy in the past fiscal year has severely felt the pains of demonetisation. Rural employment has also been marked with sluggish and subsequently negative growth. The schemes of the government have failed to catch on as well. This has led to a loss of voter support suggesting widespread anger and disenchantment.
According to data from the Central Statistics Office (CSO), the country’s economic growth is expected to decline to a four-year low of 6.5 percent in the coming fiscal year, mainly due to the poor performance of the agriculture and manufacturing sectors. The CSO has pegged farm and allied sector growth to slow from 4.9 percent to 2.1 percent in the current fiscal year.
Access to the formal credit system is a significant problem for the sector. According to some estimates, 40 percent of the farmers—there are nearly 240 million people engaged in farming activity—still rely on informal sources of credit from money lenders. Given the rising rural distress, farm loan waivers become a convenient instrument that governments have used to extract maximum political benefits. What farmers need for their survival is income, and not so much debt relief. In other words, instead of a short palliative measure, the country needs agricultural renewal and improvement in productivity. In the long run, strengthening the repayment capacity of the farmers by improving and stabilising their income and providing them with more reliable credit sources is the only way to keep them out of distress.
Taxing the rich farmer
Last year, the Centre confirmed that it had no plans to tax rich farmers. Chief Economic Adviser Arvind Subramanian had questioned the legitimacy of this plan, highlighting the importance of distinguishing rich farmers from poor farmers. Agricultural income can reap great dividends for the government, without burdening the poor and marginalised farmers. The Economic Survey, the government’s annual publication preceding the budget, also made a case last year for the taxing of agricultural income of the well-off.
The reality is, in India the agriculture sector is highly diverse and unequal, both in terms of land holdings and incomes. As per the 70th National Sample Survey, the landholding pattern of agricultural households reveals that almost 70% have marginal holdings of below 1 hectare, and a very small percentage—only 0.4%—hold significant lands of over 10 hectares. Thus there is scope to talk about the taxation of agricultural incomes of the very top level of the agricultural household distribution.
This will also help to hinder tax evasion in agriculture. The agricultural sector has long acted as a tax shelter with tax evaders artificially showing agricultural income. Bringing more people under the tax net will help to plug the holes in the tax system. Moreover, the biggest beneficiaries of the tax exemption have been huge agro companies
However, this plan will most likely not be implemented as the government will not wish to antagonize the vote bank. The administrative difficulty in implementation of the tax also prevents its imposition. The imposition of a tax would also lead to an increase in prices.
Featured Image Source: pranshurathi on Visualhunt / CC BY
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