Farm, jobs, trade are focus
By Shivaji Sarkar
The 2025-26 budget presents a formidable challenge for Finance Minister Nirmala Sitharaman, as she grapples with pressing issues such as curbing inflation, boosting consumption, stimulating private investment, and steering India’s development amid concerns over a slowing economy.
On the global front, she must also address potential economic headwinds from the policies of the newly-elected US President Donald Trump, which could result in higher petrol prices and a stronger dollar, adding to India’s economic complexities.
Domestically, urban consumption—long a reliable growth driver—has weakened, and private investment remains subdued. India’s growth rate has fallen to a two-year low of 5.4 percent, with annual growth estimates for 2024-25 at 6.4 percent, a sharp decline from 8.2 percent in 2023-24. Yet, the Reserve Bank of India remains optimistic, asserting that the country’s structural growth drivers are intact.
Simultaneously, the rural economy and agriculture sector demand urgent attention. Indian farming faces a myriad of challenges, including a growing population, shrinking land resources, climate change, rising nutritional demands, labour shortages, mechanisation, pricing dilemmas, and environmental concerns. Balancing these factors will be crucial to achieving inclusive and sustainable growth.
The government plans to increase agricultural spending by 15 percent to $20 billion in the new budget, aiming to boost rural incomes and curb inflation. The funds will prioritise developing high-yield crops, enhancing storage and supply chain infrastructure, and promoting pulse, oilseed, vegetable, and dairy production. However, the immediate impact remains uncertain, as many of these initiatives take time to deliver results.
Agriculture continues to be the backbone of the Indian economy, necessitating targeted interventions to enhance productivity, build resilience, and create alternative income sources for small and marginal farmers.
The Food and Agriculture Organisation (FAO) report, Regional Overview of Food Security and Nutrition 2023, revealed that 74.1 percent of Indians were unable to afford a healthy diet in 2021, slightly improving from 76.2 percent in 2020. The 2024-25 budget, however, made limited progress in addressing these challenges.
RBI Governor Sanjay Malhotra, in the bi-annual report, expressed optimism that the Indian economy would gain momentum by the end of the current fiscal, despite global uncertainties. Deloitte India also noted cautious optimism, citing the government’s focus on infrastructure development as a potential growth booster.
The latest NSSO Household Consumption Expenditure survey highlights a stark disparity in rural and urban incomes, with average rural MPCE (Monthly Per Capita Consumption Expenditure) at just 58 percent of urban MPCE. While reforms aimed at increasing rural income have been implemented in recent years, progress has been gradual. Over the past five years, the government has allocated an average of 3 percent of total budgeted expenditure to the Ministries of Agriculture, Fisheries, Animal Husbandry, and Dairying, underscoring the need for more robust support.
The farmers still are facing problems of small and fragmented land holdings, poor adoption of mechanisation, inadequate irrigation facilities. Some major problems faced by farmers in India include, soil fertility depletion, and inadequate access to crop insurance schemes.
Small and marginal farmers, who constitute over 82 per centof the farming population, rely heavily on agriculture for their livelihoods. Expanding funding for allied activities such as agroforestry, animal husbandry, and fisheries can provide much-needed additional income streams. Investments in cattle farming, poultry, sheep rearing, and small-scale fisheries, including shrimp farming, can contribute significantly to rural incomes.
Encouraging natural and organic farming through certification, branding, and the provision of bio-inputs via dedicated resource centres can further align agricultural practices with sustainability goals. Increased budgetary support for organic fertilizer production, utilising resources like cow dung, will promote self-reliance in farming inputs while reducing dependency on chemical fertilizers, a government aim.
It’s easier said but bringing down the use of urea and DAP, nitrogen, phosphate, potash has its problem, much of which is imported. Despite rise in prices, the government has announced subsidy of Rs 3850 per tonne of DAP and has put prices pinned three years ago at Rs 1350 despite actual prices of Rs 2000 for 50 kg bags.
Agriculture employs 54 percent of India’s workforce but contributes 18 percent to India’s GVA. This highlights the need for increasing productivity in the sector. As per an IMF paper, India’s labour productivity (PPP adjusted) in agriculture is only 12.2 percent of the median productivity in advanced economies and 43 percent of the median productivity in emerging markets. Addressing the problems of farmers and contacting them for adopting new technology in remote areas has become a problem along with marketing and remunerative prices. Agriculture, totally in private sector, has to bear the vagaries of nature. Food is one item that the US has been subsidising heavily for decades.
The government has to do balancing tricks. The debt burden is high. Infrastructure investments, including roads have benefited corporate but tolls and rise in input costs have made Indian farming difficult. Road projects have also caused loss of 50 lakh hectare of arable land.
The government has also to address new Trumpism that is likely to put lot of pressure on the international market, petrol prices, change in alternate energy policies, Indian exports and the employment. So, it has to go beyond agriculture. The IT and AI developments are impacting Indian enterprises causing further job issues. Banks, though the RBI says are in good health, have problems of thawing deposits.
Manufacturing and other sectors are constricted by low purchasing capacity of individuals. The Finance Minister has to think of a new policy to keep manufacturing costs low so that inflation remains under check. A relook at GST is desirable. This may remain pipedream.
The Finance Minister has little scope to play with taxation. People want a relook at income tax since the government brought down corporate taxes to 22 percent. She may do some rejig but bringing down the rates may not be easy. The railway fares and commuting cost are rising. Would she be able to check?
Agriculture may be the backbone of the Indian economy, but balancing its needs with those of other sectors remains a critical challenge. While the budgetary process generates significant curiosity, it is unlikely to introduce groundbreaking changes. Post-budget, the country must redefine its economic vision, focusing on becoming a low-cost, fast-growing economy. Simply boasting about achieving “trillions in record economic size” will not alter the nation’s trajectory.—-INFA
(Copyright, India News & Feature Alliance)
New Delhi 25 January 2025
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