Union Budget 2017 Takeaways for Agriculture Industry

Expert panel to curb high volatility in the Agri markets
The Union Budget was announced on February 1 with three major reforms – there was an indication for initiation of fiscal expending, followed by merging of Rail Budget to the main budget in addition to the elimination of plan and non-plan expenditures. The Government is willing to focus on subjects associated with farmers, rural infra and employment, youth jobs and skills, poor strengthening security, infrastructure, financial sector, digital economy, public efficiency governance reforms, fiscal discipline, tax stability. Risks related to crude oil price fluctuations, fed policy and global announcements were highlighted during the budget session. The Finance Minister Mr Arun Jaitley said that the agenda for 2017-18 is transformed, energise and clean India, i.e. tech India. The country has moved from a discretionary based administration to a policy and system-based administration.
As per the budget, Agriculture is expected to grow at 4.1 % this fiscal, even the total area sown under current Rabi season is higher than last year. There has been an appreciation in Kharif crops like soybean as soy meal finds a greater use in poultry feed rations. The rise in production of crops such as Maize and soybean will be helpful in keeping poultry feed cost relatively cheaper than the previous year. This would, in turn, enable domestic consumption to remain better. Also, soy meal export share can improve significantly compared to last year. Because of higher production of soybean, offers of soy meal have gone down and are currently at par with the global prices. The rise in production will mean increment in exportable surplus. It is crucial to note that as per recent USDA report, India’s soybean meal exports is projected to rise to 1.8 MMT in MY2016/17, taking into account a larger harvest and growing crush leading to greater exportable supplies.
The government has raised the target for agri credit at INR 10 lakh crore in 2017-18. Allocation for the rural sector for FY18 is INR 1,87,223 Cr, which represents an increase of 24%. Fasal Bima Yojana coverage to be increased from 30 to 40 percent in 2017-18 and 50% in 2018-19, and present allocation is raised to INR 13,240 crore next fiscal, from INR 5,500 crore now.
The government has shown interest to support computerization and integration of Primary Agriculture Credit Societies (PACS), which act as the front end for loan disbursements. Higher credit target for agriculture and computerization and integration of Primary Agriculture Credit Societies will be important in improving the fund flow in rural areas. The focus will be on irrigation and crop insurance to help mitigate climate vagaries.
It is also conveyed that demonetization will help in a cleaner, healthier GDP. Digital economy will be beneficial in removing corruption and fiscal discipline. The budget proposes National Agri markets to be expanded 585 markets from current 250 markets, which will help farmers in selling their produce to any mandi across India and get a reasonable price for their products. This move shall also enable transporting goods from excess to regions deficient in the relevant produce, eventually leading to price control and benefit the consumers. The government soon will be launching two new schemes that will provide information on crops, government schemes, weather and other information directly to the farmers. Transportation railways is also proposed to implement end-to-end connectivity for some commodities with the help of logistics firms.
The government had also proposed an expert panel, which is to be constituted to study and prepare a framework to integrate spot and derivatives markets for commodities. The introduction of a draft bill for integration of Spot and Derivatives markets for commodities trading is likely to curbing high volatility in the Agri markets. This will be beneficial for farmers and traders for hedging purpose. Therefore a stronger market framework for commodities can provide better price signals and benefit farmers. The feed industry is the biggest demand driver for soybean meal and since soy meal is also traded in future, it will help the feed industry with lower price volatility risk in near future.
Besides, irrigation corpus increased from INR 20,000 crore to INR 40,000 crore. Focus on irrigation and crop insurance will contribute in managing the risks associated with the climate.
The Agricultural credit target for 2017-18 is fixed at INR 10 trillion, an 11% increase from the 2016-17 target of INR 9 trillion. Budgetary provision for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is at INR 48,000 crore, up from the INR 47,499 crore revised estimate for FY17.
The fertiliser subsidy for 2017-18 is at INR 70,000 crore, similar to 2016-17. According to ICAR, subsidy for P&K (phosphorous and potash) fertilisers in the nutrient-based subsidy scheme has been hiked marginally. All in all, the government has retained subsidy at the current-year level, despite a reduction in costs necessitating a lower subsidy requirement for 2017-18. Where previous years’ subsidy dues stand around INR 32,000 crore, this move shall bring a significant reduction at least, if not wiped out completely.it1

by Abhijeet Banerjee, Religare Commodities