Tuesday, March 28th, 2023 15:12:51

The Budget And The Small Farmer!

Updated: March 23, 2013 10:59 am

Even as the pink papers are busy offering many shades of opinion on the Union Budget, and most editorials have mentioned the difficulty of being a ‘finance minister ‘ in coalition times, little attention has been paid to a significant announcement about the government’s endeavour to link farmers to markets. To my mind, an important highlight of this budget has been the clear recognition of the fact that the problems of agriculture lie not so much in production as in aggregation, consolidation and marketing of produce. Recognising this fundamental feature of India’s farming system: viz, the overwhelmingly large number of marginal and small holdings, the Finance Minister has acknowledged the formal role which farmer producer organizations can, and should play in linking farmers to markets. While it is true that the DAC through the small farmers agribusiness consortium has been supporting FPOs (Farmer Producer Organisations) and FPCs (Farmer Producer Companies) among vegetable producers in peri-urban areas, and in pulse villages under the special programmes of RKVY, the budget announcement recognises the farmer’s producers companies as the ‘lead agency’ for economic transformation of the agrarian economy.

However, before one moves on, the usual questions are in order. Haven’t we tried this earlier through the great co-op movement? Have we forgotten our obsession with spreading the co-op net throughout the length and breadth of the country, and Nehru’s famous remark: Co-operation has failed, but co-operatives must succeed? Are we resurrecting the same genie? Have we not had enough of NAFED, and now IFFCO? How do we ensure that the problem which afflicted co-ops does not affect FPOs?

Firstly, unlike co-operatives, FPCs have been envisaged as business enterprises, with the specific aim of increasing farmers’ incomes through consolidation, aggregation and value addition, wherever possible. It is clearly ‘market driven’, which recognises the salience of the market, and has no illusion about being an ‘alternative’. By their very nature, they are restricted to their domain—and are not aspiring to doing multiple tasks—from PDS to fertilizers to credit—which is what led the LAMPS (large sized agricultural multipurpose societies) to blink out. Based out of cluster, it envisages a membership of 800 to a thousand farmers all of whom are actual producers. It is important to note that unlike the co-operative society which insists on land ownership as a criterion—here the focus is on the producer. Thus an oral lessee or a tenant farmer can be a member, and the membership has no bearing on land ownership.


This was most eagerly awaited budget as it was expected to salvage India from the current economic mess and set the tone for reforms and growth. What has turned in the Parliament is a budget with high hopes and a lot of frills. There has been stupendous effort to do windows dressing and cash on sentimental issues of the country. Take the example of women banks or security of women and many other things like the ‘Anubhuthi’ of Railways and taxing the super rich or provide nominal sum to food security. Above all a lot of Tiruvalluvar poetry. There is high degree of tokenism and symbolic concern rather than substantial economic measures. No doubt these got a lot of desk thumping.

The greatest achievement front paged in the media was the containment of fiscal deficit. It is true that India was running highest deficit. It was like living beyond the means. India’s first budget proclaimed that the country will not live beyond means but all the years we lived broke and this year it was the record 5 per cent which with the states deficits amounted to 8 per cent. Artificially this was held in check by stopping expenditure for last few months reducing to the tune of 9 per cent of expenses and even withholding TDS refunds which now amounts to 435000 crore. Can a government hold citizens to ransom? But if you have power you can do what you like.

Government had priorities of development in infrastructure, manufacturing which has gone down to the lowest level reducing income and employment. Its encouragement was little and much needed R&D remained 1 per cent of GDP. India badly needs breakthrough technology and boost to manufacture. Farm sector is facing biggest stagnation in productivity but its research remained 4 per cent. Why should the government not reduce deficit by getting out of Air India, photo films production, scooters, and so many things which are better done in private sector? Instead it went funding Air India. Industry projects are held up everywhere for environment or other clearamces of government. Land issue continues to be a barrier in going ahead.

Instead of squandering money on MNREGA and other social sector schemes it should have helped farmers to get better price and incentive. For example in Haryana paddy costs Rs 1566 but government buys it at 1280. Swaminathan committee recommended 50 per cent profit for farmers but it is rather not even the cost. Farmers will soon switch over from wheat and rice to cash crops and there is bound to be shortage in food increasing inflation.

The highest priority of containing food prices has received no attention. On the other hand petrol and diesel are galloping, which is the only way for FM to reduce deficit. There are no measure of cost control or government expenditure reduction. Why legislature could not be asked to sacrifice when there is national crisis especially when they receive everything tax free? The expenditure is being increased by 16.4 per cent, whereas in the last budget it was only 13.5 per cent. How deficit will be reduced is not clearly and completely spelled out. In advanced countries too there is deficit but they have a clear plan to deal with but there is no plan for India. The US think tank Heritage Foundation has commented that India is heading for economic doom in absence of meaningful reforms. Aam aadmi gets nothing except running inflation. Thank FM for not presenting worse budget and keeping it in lustreless limits without a vision.

 By NK Singh

(The author is former chairman, International Airports Authority of India)

Secondly, being registered under the Companies Act, it sheds its baggage of being an appendage to the state. It is true that as per the budget announcement, FPCs can get matching equity of up to ten lakh—but the first step towards this is the mobilisation of this equity by the members themselves. Thus only if each of the thousand members has put in Rs ten thousand each, will the equity support of Rs ten lakh be made available?

Thirdly, it is a member driven organisation with a very flexible, and if one may say, nimble structure. Most employees and managers, including the CEO will be on performance linked contracts, which ensure that the administrative overheads remain in check. Most employees and managers will be local, and as their competencies build up over the years, they may also establish their own enterprises with a focus on value addition, processing and related activates.

Let us now come to the announcement, and what it actually offers. In the first place, it offers a very supportive policy regime for FPCs. The registration is under the more liberal Companies Act, rather than the restrictive Co-op Societies Act which in most states continues to give overwhelming powers to the Registrar. The Companies Act only registers, unlike the Coop Act, which takes on an engaged involvement. However, professional support necessary for the organisation of FPCs will be available from the three flagship interventions of the DAC, viz RKVY, NHM and the NFSM. They will be earmarking up to 5 per cent of their funds for extending ‘process support’ which would be provided by designated resource institutions identified, selected, trained and vetted by the SFAC. The institutions will receive equity support, and more importantly, extended collateral free loans by banks on the lines of medium and small enterprises. Thus SFAC will be the organisations what SIDBI is to medium and small enterprises. Towards this end, a credit guarantee fund of Rs 100 crore has been proposed, which will be operated by the SFAC. FPCs will also usher in healthy competition to the co-operatives engaged in procurement operations undertaken by NAFED, CWC and FCI by undertaking this task directly with their members, thereby cutting procurement costs and time. This will require some changes in the existing policies and rules in force, but if the farmers cluster in a pulses village can take the MSP operations, it will add to equity and efficiency, besides cutting down on corruption. Moreover, they can hold the stock in warehouses and avail the facility of warehouse receipts, and financing thereof.

The presence of the FPCs in the market will also build pressure on the state governments to amend the APMC Act—the albatross which prevents price discovery in the agricultural markets because primary producers or their organisations do not come in the category of ‘buyer’ or ‘seller’ or ‘commission agent’, and thereby get excluded from making actual transactions. Not only will the farmers save the six to eleven per cent ‘commission agency’ charges, it will be difficult for the ‘buyers’ to make ‘cartels’. Moreover as FPCs increase their business, more transactions in the APMCs will be recorded, thereby increasing the revenues of the state government. The resistance to APMC reforms comes from the trader’s lobby- and the best way to counter this is strengthening the producer’s organisations.

Last but not least is the issue of parity with co-operatives, especially with regard to taxation. This is not entirely within the ken of the GoI: however it is expected that most state governments will follow suit.

After all, everyone would like to take credit for raising farmers’ incomes!

 By Sanjeev Chopra

(An IAS Officer, the author is Joint Secretary & Mission Director, National Horticulture Mission, Government of India. The views expressed are personal.)





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