BUDGET ANALYSIS ON

AGRICULTURE SECTOR
OF INDIA

ASSIGNMENT 2 – ECONOMICS
NAME- KALPANA
CLASS B.A.LLB
STUDENTS ID- LWBLI19364
ROLL NO- 1914151
Introduction
Agriculture is the most important sector of Indian economy. Indian agriculture sector
accounts for 18 percent of India’s gross domestic product and provides employment to 50
percent of the countries workforce. India is the world’s largest producer of pulses, rice,
wheat, spices and spice products. India has many areas to choose for business such as dairy,
meat, poultry, fisheries and food grains etc. India has emerged as the second largest producer
of fruits and vegetables in the world. According to the data provided by the Department of
Economics and Statics ( DES) the production of the food grains for the year is 264 million
tons which is increased when compared to last year 257 million tons. This is good symptom
for Indian economy from the agricultural sector. India remains among main three as far as
production of different agriculture things like paddy, wheat, ground nuts, natural products,
tea, jute, coffee and so on.

Role of Agriculture Sector in the Economy

The agriculture sector employs more than 50 per cent of the workforce in India. It plays a
vital role in our overall economy.

• Contribution to national income

Agriculture and its related activities have always held a significant share in our
national income. In recent years, the share of contribution has declined gradually with
the growth of other industrialized sectors in the country. In 1950-51, agriculture and
allied activities contributed about 59 per cent of the total national income. This
number declined to 40 per cent in 1980-81 and then to 18 per cent in 2008-09. But the
agriculture share in India still remains very high as compared to many developed
countries of the world. For example, agriculture contributes only 3 per cent to the
national income in U.K. and U.S.A.

• Source of livelihood
Over two-thirds of the working population in India is engaged directly in the
agricultural sector. As per estimate, about 57 per cent of the working population
is engaged in agriculture, as opposed to 2 to 3 per cent in U.K. and U.S.A. and 6
per cent in France.

• Source of food supply

Agricultural products are the major source of food supply for the huge population of
our country. As per certain estimates, it meets about 60 per cent of household
consumption.
• Role of Agriculture for Industrial Development
There are several important industries in India such as cotton and jute textiles, sugar
manufacturing, edible oils, plantation industries (tea, coffee, rubber) and many
agrobased cottage industries that depend on the agricultural sector for the supply of
their raw materials. These agro-based industries generate about 50 per cent of income
in the manufacturing sector, thus, agriculture helps in the industrial development of
this country.

• Commercial Importance
Agricultural products constitute a large part of the total exports of this country. Some
of the main items in our export list include tea, coffee, sugar, tobacco, spices, cashew
nuts, etc. These contribute to about 50 per cent of the total exports from India. In
addition to agricultural products, products from agro-based industries like jute and
cotton textiles also contribute another 20 per cent to the country’s total exports.
Hence, the agriculture sector is vital to the country’s international trade and
commerce activities.

• Source of government revenue

Both the Central and State Governments of the country earn significant revenues from
the agriculture sector. The rising land revenue contributes towards a substantial
income. There are also other sectors like railways and roadways that derive a good
part of their income from the movement of agricultural goods.
With all the above points, it can be safely said that agriculture is an essential
foundation in the country’s economy. As per the Economic Survey 2017-18 Report,
agriculture sector employs more than 50 per cent of the total workforce in India and
contributes around 17-18 per cent to the country’s GDP. The report also stated that
Indian farmers are adapting to farm mechanization at a faster rate in comparison to
recent past.

• Rising Mechanization in Agriculture

The Indian agricultural sector has seen considerable progress been made in the field
of agricultural implements over the past decades. From using various hand tools like
spades, pick axes, crowbars and sickles, Indian farmers have now graduated to using
modern agricultural implements such as combine harvesters, rice trans-planters,
power tillers, threshers, tractors, pumping sets, etc.
The Indian market has several leading tool manufacturing companies who produce the
highest quality of agricultural implements. Their distribution channels include both
B2B and B2C, with B2C having the largest share. Consumers can also buy agriculture
tools online from various e-commerce platforms.

The Indian agricultural implements market was worth US$ 8.5 Billion in 2017. The
market value is further projected to reach US$ 12.8 Billion by 2023, exhibiting a
CAGR of 7.03 per cent during 2018-2023.
 The agricultural implements market in India has been categorized on the basis of
product type including tractors, rotator’s, threshers and power tillers. Agricultural
tractors dominate this market. The Indian tractor industry is the largest in the world
and accounts for one-third of the global tractor production.
As mechanization in this sector continues to rise, tool manufacturing companies are
now offering their agriculture tools online on e-commerce sites. This ensures that
even the smallest fraction of farmers can buy required tools and equipment’s on their
will.

Major Agriculture problems in India and its

Solutions
Some of the major problems and their possible solutions have been discussed as
follows. Indian agriculture is plagued by several problems; some of them are natural
and some others are manmade.

• Fragmented land holding

Nearly 80% of the 140 million farming families hold less than 2 acres of land. Large
land holdings enable the farmer to implement modern agricultural techniques and
boost productivity. Small land holdings restrict the farmer to use traditional methods
of farming and limit productivity.

As land holdings are small, more people invariably work on the farms in the rural
areas and coupled with the obsolete technology, farm incomes come down.

• Irrigation problem
Most of the farming in India is monsoon dependent – if monsoons are good, the entire
economy (and not just the agricultural sector) is upbeat and when the monsoon fails,
everyone everywhere takes a hit to some extent. The problem here is of proper
management of water or the lack of it.

Irrigation which consumes more than 80% of the total water use in the country needs
a proper overhaul if the country has to improve agricultural output and boost the
overall economy.

• Seeds problem
Most of the farmers – especially the poor and marginal ones – are dependent on seeds
sold in the market. Moreover, the HYV seeds as well as the GM seeds which promise
higher yields force the farmers to buy seeds for every crop. With spurious seeds
 hitting the market, the farmers’ woes have exceeded all limits. Sometimes seeds do
not give the stated/claimed yields and farmers run into economic troubles.

In many cases of GM and HYV seeds, farmers are forced to use high amounts of
fertilisers and pesticides, provide large amounts of water (irrigation) and abide to all
the other farming requirements that the companies mandate to get the proper yields.

A proper regulation/legislation to hold seed companies accountable for false claims is

the need of the hour as companies use legal loopholes to push the blame on to the
farmers in the case of failed crops.

• Sustainability problem
Indian agricultural productivity is very less compared to world standards due to use of
obsolete farming technology. Coupled with this, lack of understanding of the need for
sustainability in the poor farming community has made things worse.

Water usage is also unplanned with some arid areas misusing the irrigation facilities
provided by planting water intensive crops. In areas where irrigation in the form of
rivers and canals is not sufficiently available, ground water resources are heavily
exploited.

Sustainability in agriculture is of utmost importance as many problems faced by

farmers are related to this. Excess fertiliser usage not only makes the plants dependent
on artificial fertilisers but also erodes the land quality, polluted ground water and in
case of a surface runoff, pollutes the nearby water bodies.

Similarly, planting crops which require more water like rice on the basis of irrigation
facilities extended to areas which are water deficient uses up more water than
required. Besides, the excessive evaporation cause salts to accumulate on the fields
making them lose their fertility quickly.

Lack of proper understanding of the need to grow crops sustainably will push farmers
into a vicious circle – of debts, heavy use of fertilisers, water mismanagement, low
productivity and thus more debts for the next cycle.

• Government handling of the issues

MSP, overall agricultural strategy of the country, PDS, storage/granaries, lack of
export market creation.

India lacks the required number of storage facilities (granaries, warehouses, cold
storage etc.) which negates the advantage of having a bumper crop in years of good
monsoon.
 Exports in agricultural sector are also not very encouraging with a share of just 10%
of the total exports, for a country where more than 50% of population is dependent on
agriculture.

The Minimum Support Prices (MSP) offered by the Government is a double edged
sword – MSPs protect farmers from being exploited by middlemen but during times
of excess crop, Government runs the risk of an unnecessary fiscal deficit by buying
the excess produce. Lack of proper storage facilities and lack of a proper international
market linkage leads to lower exports and in many cases leads to huge amount of
wastage.

Solutions
• Consolidation of village lands and cooperative farming will ease the burden of
fragmented land holdings. When the farmers form a consortium at the village level,
the aggregate land can be farmed by using the latest technology.
Banks too will be willing to lend money to a village consortium which can be utilised
to boost farm productivity, employ sustainable farming methods, reduce over –
dependence on fertilisers and thus solve many problems.
The overall risk of a crop failure is less in this case and small farmers have a higher
chance of earning a decent income at the end of the harvest season. Agricultural
intensity also rises when a planned strategy adopted at the village level is
implemented.
Agricultural credit and farm mechanisation for small and marginal farmers will
continue to be difficult unless pooling of farm resources and/or a joint usage of farm
technology are employed.

•
Irrigation problems can be addressed by Government – preferably at the State and
National levels. Though the Government cannot force farmers to produce only the
designated crops in particular areas, it can surely educate them about the alternatives.
When proper techniques (in water management at the regional, state and national
levels as well as a crop plan of what to produce and where to produce) are employed,
it will be a win – win situation for both the farmers as well as the country.
Irrigation problems as well as problems due to single/traditional crop dependence can
be solved by a national level plan for agricultural production. Government can
encourage farmers to shift to cash crops (oil seeds etc.) instead of food crops in areas
where food crops are not at an advantage to reduce imports and also to boost exports

• Seed problems can be overcome by creating in house seed banks at the village level
for traditional crops (thereby reducing farmer dependence on external seed banks),
selling Government approved seeds through proper channels (to eradicate spurious
seeds) and strict penalties on seed marketing companies in case the seeds do not
match the claims – germination and yield – of the companies. Terminator seeds
 should not be encouraged as a matter of principle as they force farmers to buy seeds
for every crop.
Scientific research in this subject is to be encouraged to promote seeds which are mild
on resource requirements but help the farmers in boosting the yields.
Sometimes small innovations at the grass root levels can solve a host of problems
specific to a particular region. District agricultural officers must make it a habit to
encourage such ideas and also take part in knowledge sharing to implement the ideas
at a regional level.

• Some Sustainability solutions are proper crop management on the basis of water
availability, crop rotation, deploying modern agricultural practices to boost
productivity, switching over to organic farming (village pools will reduce costs),
thrust on allied activities.
• At the National level an agricultural strategy or policy to improve information
exchange, national level cold storage chains and logistic network (If Walmart can do,
then Government of India can also do!) is the need of the hour.
• Proper management of PDS has to be done to cut down wastes so that a reliable
estimate of the food grain needs will be made. The excess (after keeping reserves for
a potential drought year) can be exported provided the quality is maintained by means
of proper storage.
Food wastage can thus be cut down and agricultural trade balance can be improved if
there is a national level plan

Union Budget of Agriculture Sector in 2020-21

Unprecedented Milestones and Achievements in Last Years

India is now the fifth largest economy in the world and Indian economy has grown by
7.4% an average with inflation around 4.5%. More than 271 million people raised out of
poverty during 2006-16. India’s Foreign Direct Investment elevated to US$ 284 billion
during 2014-19 from US$ 284 billion during 2009-14. Central government debt reduced
to 48.7% of GDP (March 2019) from52.2% (March 2014). GST removed many
bottlenecks in the system. These are the very important achievements that Indian
economy has achieved in the last couple of years; having so in the recent times there has
been certain issues playing the Indian economy for example, the GDP growth rate slow
down to 4.5% and inflation rate has crossed 6% barrier which has been given to RBI and
has reached 7.3% more than in the month of December and exports have slow down etc.
So to overcome this we need to know the reforms which have been announced by
government of India in the union budget 2020.
 The Budget included the following points
Total allocation of about Rs 2.83 lack crore has been made for the year 2020-21
• For Agriculture, Irrigation,and allied activities -Rs 1.60 lack crores
• For Rural development and Panchayati Raj – Rs 1.23 lack crores

Beneficiaries under PM-KISAN would be eligible for Kisan Credit Card: the government of
India provides a payment of Rs.6000 per year in three quarterly installments of Rs.2000 to
the farmer families, subject to certain exclusion relating to higher income groups. About 14
crore farmer families are expected to be covered under the scheme.

Central government proposed to encourage State governments that implement three model
laws – Model Agri Land Leasing Act, 2016; APMC, 2017 and Contract Farming, 2018 – to
ease the marketing of agricultural produce.

Expansion of PM-KUSUM (Pradhan Mantri Kisan Urja Suraksha evem Utthan Mahabhiyan):
The government plans on pushing for solar power usage in the farms by promoting solar
energy among the farmers, under this government of India aims to generate 25GW of
electricity through the usage of solar pumps by 2022. The government through this budget
provided the 20 lakh farmers by setting up the stand alone solar pumps and also set up solar
irrigation facilities and another 15 lack farmers will be helped to solarize their grid connected
pump sets.

Impact of Agriculture Budget 2020-21

The positives and limitations of Budget 2020 on India’s agriculture sector. Though the
economic survey highlighted the role of agriculture sector in GDP, it mainly focused on
suggesting production-related reforms in agriculture.

Positives of Agriculture Sector

Budget 2020 includes many big tickets for the agriculture sector. The government has
focused on irrigational facilities by introducing solar power projects in 100 water-stressed
districts. Further, it will partly finance around 20 lakh standalone solar pumps and 15 lakh
on-grid solar pumps. As a result, farmers will be able to use their barren land to increase their
income. Also, there are provisions for providing cold storage facilities to farmers in their
local areas with the help of WDRA. Moreover, the budget focused on the inclusion of
women SHGs in setting up of these warehouses with FCI and CWC.

Linking warehouses with e-National Agricultural Market (eNAM) is a good measure as it

would help local Farmers Producer Organizations (FPO). Besides, the ‘One District-One
Product’ scheme will have a positive impact as it will encourage the development of
horticulture collectively. Also, Krishi Udaan and Krishi Rail schemes for speedy
transportation of perishable commodities are well-thought decisions.

Limitations of Agriculture Sector

Funding from Mahatma Gandhi National Rural Employment Guarantee Scheme
(MGNREGS) for fodder production may seem a good measure. However, cutting down of
MGNREGS allocation by 13% has ruled out all its positive impacts. Also, decreasing FCI’s
procurement operations would prevent farmers from availing market assurance benefits to
whatever small number it was reaching. Besides, slashing the allocation of MGNREGS is not
compensated in the PM-Kisan scheme as the former addressed to marginal and landless
farmers. Apart from this, just handing over three new models for land leasing, contract
farming, and APLM is not enough. Besides, focus on Zero Budget Natural Farming may
bring 20-25% losses to farmers. Further, the promotion of 500 fish FPOs is just part of the
previous year’s budget target of promoting 10,000 FPOs. The government must deliver
continued support to FPOs after their initiations.
In all, the government took some great decisions to promote farmers’ welfare. However, the
budget blindly follows the recommendations of economic survey by focusing on production
issues, leaving behind market efficiency aspects.

Conclusion
The government plans on reviving the agricultural sector and doubling the income of farmers.
The government will focus on zero budget farming which was proposed in previous year
budget by the government. As the FM announced her 16-point formula to revive agriculture,
the Agro stocks shot up on stock exchanges. Sitharaman expressed hopes that these
initiatives will double farmers income by 2022, a target set by Prime Minister Narendra
Modi. Usually the agricultural issues can’t be solved by one budget, but with 5 year plan the
agricultural issues can be solved.