Budget 2022-23 Expectations for Agri Sector & Impact on Agricultural Commodities

As the economic recovery continued, India was able to step in successfully to meet the increased global demand after the second half of 2020. This was observed despite the unprecedented global pandemic. India’s agriculture sector was among the few segments that remained robust amid the pandemic miseries.

As per experts, our agricultural growth rate is likely to be 3.6 per cent in the current financial year ending March 2022. On the other hand India’s agricultural sector is estimated to grow by 3.9% in 2022-2023, i.e. better than the current fiscal. The total exports of Agricultural and Processed Food Products Export Development Authority (APEDA) products increased from $6,485 million in April-August 2020 to $7,902 million in April-August 2021. This was understood from the estimates released recently by the Directorate General of Commercial Intelligence and Statistics (DGCI&S). A noticeable jump has been noted in exports of agricultural and processed food products during the first five months of the current financial year. This is in continuation of the growth in exports witnessed in the financial year 2020-21.

Agriculture has played a critical part in these pandemic times and is one of the most critical sectors of the economy, we anticipate this budget will surely focus on agriculture, as it has in previous years. Government is likely to come out with policy measures to stimulate the landscape by improving access to credit and widening scope of crop insurance. Government will also focus on setting up and enabling institutions to mobilize essential Agri services and new age technology production inputs further. Also, the government’s priority shall continue on doubling farmers’ income by 2022-23 and becoming a USD 5 trillion economy by 2024-25. For the new fiscal - Sops/allocations or incentives  are expected in agri infrastructure, exports, retail segment, storage facilities in addition to the credit  related services and allocations for enhancing their social security conditions. The policy announcements should now be made, considering the need for demand-driven activities.

Emphasis on Boosting Exports & Farmers’ Income

The government is likely to incentivize value addition in agriculture, in order to enhance income of the farmers, as it aims to develop the sector even after the withdrawal of farm laws late last year. Value addition services are essential to encourage backward linkages to the farms. This will also involve extending support in selling overseas by the farmers to help them in establishing markets for their products. Emphasis should also be given towards provision of additional transport, marketing and branding incentives for exports covering diverse farm produce.

Assistance in Research & Manufacturing Services

India’s agri chemical industry is growing significantly and has the potential to become a worldwide supply hub, if there is an improvement in the facilities provided to the sector. There is a need for further assistance for research and manufacturing in India. A better system for refinement in the product prices is another concern that must be addressed. It is expected from the government to focus on lowering input costs to the greatest degree possible in order to enhance the living standards of the small as well as marginal farmers of the country.  

Allocation towards Credit Related Services

Agricultural credit plays a crucial role in farm sector development and facilitates adoption of new technologies. In previous budgets, the credit related policies along with the necessary interventions of Government and RBI, have yielded successful results in the field of agricultural credit . Credit is a crucial component in increasing farm output. Institutional lending will also assist farmers break free from non-institutional sources where they are forced to borrow at exorbitant interest rates, thus impacting their profit margins. The government has been increasing the loan target for the agricultural sector every year, and there is a  possibility of  a  higher allocation for the 2022-23  budget.

Funds for Logistics/Storage Facilities

Storage is an important marketing function, and involves holding and preserving goods from the time they are produced until they are needed for consumption.  Likewise logistics management in the agricultural industry ensures that agricultural goods have a continuous flow from manufacturers/suppliers to producers and eventually to every customer’s doorstep. The government seems interested in providing incentives over and above the ₹10,900 crore production-linked incentives (PLI) scheme for food processing in order to promote the creation of relevant storage and logistics infrastructure.

Focus on Expenditure towards Strengthening of Retail Segment

India is the world's sixth-largest food and grocery market as per industry reports. In India, the food and grocery retail business accounts for over 65 percent of the total retail market. It is a need of the hour, for the processing industry to be linked to retail, as this would strengthen the farm-to-fork channels and provide more cash for the farming community. A farm-to-fork model either sets up a logistical chain owned by the retail company, or outsources it to a logistics company. The chain includes small wholesale markets, or mandis, where the farmer can come and get a good price for his produce. The food sector in India has successfully established its presence in the last 5-10 years. As per agricultural economists, the food ecosystem of the country offers enormous investment opportunities with stimulating growth in the food retail sector, favorable economic policies, and attractive fiscal incentives

Allocation in Important Schemes & Subsidies

When compared with the previous budget there are lesser chances of significant increase towards the rural allocations. But there are possibilities of increase in allocation towards schemes such as the MGNREGS, fertilizer subsidies and extension for free food grains for another six months or so. As the pandemic is not over yet therefore these schemes are likely to remain under consideration in the upcoming budget. In 2021, allocation was made towards the rural infrastructure development fund and the amount was increased to Rs.40,000 crores.

Impact on Agriculture Commodities

The 2021-22 Budget was indeed a bold one that aimed for a bigger push towards growth and investment in the Agriculture sector. There is a clear message that the focus shall continue on the welfare of the Agriculture sector and farming community in the forthcoming budgets.  Although the government is keen on controlling food inflation, the expansionary policies expected this year in agricultural exports/credit services/infrastructure/logistics & retail segments would be beneficial in income growth of the farmers in the longer run.

• The benefits in terms of profit margins are expected to pass on to the other value chain participants as well. All in all, the expected budget initiatives will have the potential to maintain average prices of the agricultural commodities, much above the previous year levels.