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The minister also needs to be complimented for clearing off the fertiliser industry’s arrears.
The third highest expenditure in the agri-food space is that of the Pradhan Mantri Kisan
Samman Nidhi (PM-Kisan), which decreased from Rs 75,000 crore in FY 2020-21 to a RE of
Rs 65,000 crore; the same amount is now budgeted for FY 2021-22.
The Pradhan Mantri Fasal Bima Yojana is budgeted at Rs 16,000 crore for FY 2021-22, not
much different from the RE of FY 2020-21 (Rs 15,306 crore). The interest subsidy on short-
term credit to farmers in FY 2021-22, Rs 19,468 crore, too will not be very different from the
RE of FY 2020-21, Rs 19,832 crore.
From a policy perspective in the agri-food space, beyond the transparency in numbers, one
must point to the huge bias towards subsidies — food and fertiliser, PM-Kisan, crop
insurance and interest subvention — as compared to investments, especially research and
development. The allocation for agri-R&D is a meagre Rs 8,514 crore in FY 2021-22 against
a RE of Rs 7,762 crore in FY 2020-21. This is bewildering as the marginal returns in terms of
agri-growth from expenditures on agri-R&D are almost five 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 Rs 20,000 crore every 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. One with respect to food subsidy, the FCI’s
economic cost of rice is Rs 37/kg and of wheat about Rs 27/kg. This economic cost is roughly
40 per cent higher than the procurement price. Why not give the public distribution system’s
beneficiaries the choice of direct cash transfers to the tune of procurement price plus 25 per
cent? This could create a more diversified demand which, in turn, will support diversification
in agriculture. Further, in food subsidy, it is time to revise the issue prices for beneficiaries.
While the “antyodaya” (most marginal) category can keep receiving grains at Rs 2 or Rs
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 60 or 67 per cent of the
population should be covered by the food subsidy or this figure should be brought down to 40
per cent.
Two, in the case of the fertiliser subsidy again, massive subsidisation of urea, to the tune of
almost 70 per cent of its cost, is leading to its sub-optimal usage. It is time to move towards
direct cash transfers to farmers based on a per hectare basis and free up prices of fertilisers.
This will help reduce leakages and imbalance in NPK (nitrogen, phosphorus, potassium)
usage and lead to efficiency, equity and environmental sustainability.
Overall, 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. Can our policymakers do it? Only time will tell.
This article first appeared in the print edition on February 2, 2021 under the title ‘A step
towards transparency’. The writer is Infosys Chair Professor for Agriculture at ICRIER