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Budget 2020: Govt needs to focus on farmers, rural employment to reignite consumption

Budget 2020: Govt needs to focus on farmers, rural employment to reignite consumption

Budget 2020: Govt needs to focus on farmers, rural employment to reignite consumption
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By Harsha Razdan  Jan 28, 2020 3:37:35 PM IST (Published)

Programmes and schemes offering financial support to farmers by either providing additional income or financing arrangements will help drive a consumption-led growth for the rural economy. 

The rural consumer and ‘aam aadmi’ will continue to take centre stage in India’s growth agenda. While we envision India as a $5 trillion economy in the next five years, the clear focus will be on consumption-driven growth. Here is a quick outline on some of the measures that could churn out from the budget to be presented on February 1, 2020.

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Schemes to boost consumption
Programmes and schemes offering financial support to farmers by either providing additional income or financing arrangements will help drive a consumption-led growth for the rural economy. Schemes such as Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), providing direct income subsidy to farmers, would improve cash flow into the hands of farmers, which will further help ignite consumption in the rural economy. The government may look at increasing this subsidy to boost rural consumption.
Schemes focused on increasing productivity and reducing cost of production
With a view to ensure farmers' welfare and address the agrarian scenario, several efforts could be directed to provide adequate water that could be used for modern irrigation and advanced farming techniques. The budget could focus on investments in farm-friendly techniques, coupled with promoting technological advancements to help improve crop yields. The budget might also consider creating funds to ensure price stabilisation for certain crops that are out of Minimum Selling Price (MSP). However, this could also impact inflation and hence the government will be cautious before making this move.
Minimising risk of extreme weather conditions
The crop insurance scheme will continue to be a major focus for protecting the farming community from vagaries of nature. Schemes such as Pradhan Mantri Fasal Bima Yojana, aimed at investing in crop insurance to cover farmers from losses incurred due to extreme weather conditions, could continue. However, this year it could aspire for a strong ground-level implementation focused to simplify processes for applications for the scheme and faster claim settlement for losses.
Focus on FPOs
India is slowly progressing towards building a strong network of Farmer Producer Organisations (FPO) in several states. Last year, the government had announced their desire to set up about 10,000 FPOs in five years. We could expect the thrust to continue by increasing investments in FPOs and some benefits like tax exemptions for FPOs, capital funding for setting up FPO, and channels for direct access to the market.
Facilitation centres for food exports
Measures to encourage food exports will continue to be a key area of focus. Facilitation centres need to be strengthened for farmers to be able to market their produce both in India and global destinations. Clusters for export-oriented products should have crop and region-specific facilitation centres, to connect farmer groups directly with global buyers.
Storage facilities and cold chain infrastructure
Various storage facilities could be proposed to be built near the farms, that would allow farmers to hold their produce without the produce getting damaged until market prices go up, thereby making it profitable enough for the farmers. Significant initiatives have been taken up to set up cold chain from farm to fork by incentivising large cold chain infrastructure across India. In order to satisfy the demand for safe and nutrition locked vegetables and fruits, the budget could focus on measures to encourage investments by both local and global fresh supply chain companies.
Food safety initiatives for consumers
Promotion of organic farming could also be an area that the government may intend to drive, along with introducing food safety initiatives across the APMCs (Agricultural Produce Market Committee), ‘mandis’ in India, by establishing training infrastructure to educate farmers and other middlemen, on the health hazards of pesticides.
To summarise, in the short-term the government will have limited room to provide fiscal incentives to farmers and could aim to reduce personal income tax rates, which will directly and speedily impact consumption. Robust implementation of initiatives and schemes to ensure that money moves into the farmers’ hands will be the key. Announcements on efforts to increase rural employment or skill development of rural youth could be expected. Taking a long-term view, this year the focus could be to re-ignite consumption by supporting farmers and promoting FPOs as this will generate rural employment. Investments in agri-tech start-ups or agri-based innovation labs could help accelerate this further.
Harsha Razdan is Partner and Head -- Consumer Markets and Internet Business at KPMG in India.
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