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Union Budget 2018-19



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The "5-Institute Budget seminar 2018-19; Reforms and Development Perspectives", was organised by the National Institute of Public Finance and Policy, in partnership with CPR, ICRIER, NCAER and IDF at The Leela Palace, Chanakyapuri, New Delhi, on February 10, 2018.

Presentations were given by Yamini Aiyar, Rajat Kathuria, Shekhar Shah, S.K. Shanthi and Rathin Roy. The panel was chaired by Shyamal Majumdar, Business Standard.

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Union Budget 2018-19

  1. 1. Union Budget 2018-19 5-Institute Budget Seminar New Delhi, 10 February, 2018 Shekhar Shah NCAER 1
  2. 2. Agriculture 2
  3. 3. Key Trends in Agriculture 3 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 GVA Agriculture Growth in GVA in Agriculture & Allied Sector at 2011-12 prices (in %) 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 0.0 2.0 4.0 6.0 8.0 10.0 Gross Capital Formation Growth in GCF in Agriculture & Allied Sector relative to GVA (in %) 2013-14 2014-15 2015-16 2016-17 2017-18 50% of Agriculture in India is still dependent on rainfall Decline can be attributed to reduction in private investment Source: Central Statistics Office
  4. 4. Key Challenges in Agriculture 4 Majority of farmers dependent on rainfall and even with good harvest, farmers don’t get sufficient price to cover full cost expenses Price Fluctuations Lack of connectivity and transport systems, food processing units, reliable power, cold storage. Limited access to financial services, credit, support expertise, education services or irrigation. Lack of Infrastructure Less than 20% of the farmers are currently covered under crop insurance Crop Insurance Poor access to market, information on weather forecasts, price and yield at time of sowing. Lack of Technology Increase farmers’ capacity to absorb technology and adopt risk- mitigating measures. Lack of Education
  5. 5. Key Objectives in Agriculture 5 High-budget Government Schemes Diversify Farmer Incomes Mitigate Risk Improve Productivity Interest Subsidy for Short Term Credit to Farmers √ √ Green Revolution √ √ Crop Insurance Scheme √ Pradhan Mantri Krishi Sinchai Yojna √ √ √ Deen Dayal Upadhyaya Gram Jyoti Yojna √ √ √ White Revolution √ √ Price Stabilisation Fund √ √ Diversify Farmers’ Income: Facilitate the development of agricultural sub-sectors like livestock and fisheries, to encourage a move from crop to non-crop sectors Mitigate Risk: Make farming a sustainable and profitable economic activity Improve Productivity: Focus on critical inputs such as irrigation, seeds, fertilizers, and mechanization.
  6. 6. • First budget pillar - Agriculture and Farmers’ Welfare: 2X farm income by 2022-23 (base year 2015-16) • Second budget pillar - Rural Sector: boost infrastructure & employment • Rural expenditure boost - in absolute and percentage terms of the Budget 6 50,814 56,589 63,836 113877 135604 138097 2016 - 17* 2017 - 18** 2018 - 19*** TOTAL BUDGET ALLOCATION TO MOA & MORD (CRORES) Agriculture Rural Development Key Budget Focus - Powering the Rural Economy
  7. 7. Ag. Schemes with Highest Expenditure Shares planned for 2018-19 7 Interest Subsidy for Short Term Credit to Farmers 24% Green Revolution 23% Crop Insurance Scheme 21% Pradhan Mantri Krishi Sinchai Yojna 15% Deen Dayal Upadhyaya Gram Jyoti Yojna 6% White Revolution 4% Price Stabilisation Fund 3% Others 4%
  8. 8. • Interest subsidy continues to remain largest share in total expenditure, Rs 15,000 cr. • Scheme reported to be misused by large farmers who borrow at subsidized rates to invest in higher return schemes, or lend to unbanked farmers • No clear framework to monitor and evaluate who avails scheme and how it is used, or how it should be modified based on experience 8 2016-17 2017-18 (BE) 2017-18 (RE) 2018-19 (BE) Interest Subsidy for Short Term Credit to Farmers (Amount in Rs. Crores) 13397 15000 14750 15000 12500 13000 13500 14000 14500 15000 15500 Interest Subsidy for Short Term Credit to Farmers (Amount in Rs. Crores) Interest Subsidy on Short-term Credit
  9. 9. • Scheme focuses on critical inputs: irrigation, seeds, fertilizers & mechanization • Potential to raise productivity up to 30 % and reduce cost of cultivation up to 20 % • Raise productivity of small farm holdings 9 10105 13741 11185 13909 2016 - 17 2017 - 18 (BE ) 2017 - 18 (RE ) 2018 - 19 (BE ) GREEN REVOLUTION (AMOUNT IN RS. CRORES) Green Revolution Scheme - Boost Ag. Productivity
  10. 10. Persistent focus on Crop Insurance Scheme Justification & Implementation Risks Crop insurance plays a major role in stabilizing farmer incomes - this is keeping in line with Doubling Farmer Income plan of the government Risks are highly correlated in agriculture: insurance works best when they are not & probability of loss is low (but high at 14-20%) Currently, this only reaches about 20% of the farmers, but over the years the number has increased – As of 2016-17, there was an 18.3% increase in farmer applications, 10.8% increase in area insured and 76% increase in sum insured under the scheme Moral hazard: Subsidising premiums will encourage risk-taking, especially for MSP crops, where this is already suboptimal 10 2016-17 2017-18 (BE) 2017-18 (RE) 2018-19 (BE) Crop Insurance Scheme (Amount in Rs. Crore) 11052 9000 10698 13000 0 2000 4000 6000 8000 10000 12000 14000 Crop Insurance Scheme (Rs. Crore) Pradhan Mantri Fasal Bima Yojana - continues to remain high priority scheme 44% increase in Budget allocation
  11. 11. Increase in MSP 11 Complementary Doubling Farmer’s Income recommendations not implemented • Mechanisms for data collection on FHP at more disaggregated level needed • Expanding the MSP to private sector participation • Offer special status to start-ups and other enterprises that purchase directly from farmers Both Rabi and Kharif crops Gov. to intervene if market price < MSP Proposal – Farmers should realize at least 50% more than the cost of their produce Issues Farm harvest price (FHP) available only at the state or district level with a certain time lag Reach of FCI is limited to a few states and to a few crops. All states won’t benefit from this policy Uses the “A2 + FL” (paid out input costs + imputed value of family labor), instead of comprehensive “C2” (A2+FL+imputed rent on owned land + interest on capital)
  12. 12. Electronic National Agriculture Market (eNAM) 12 While FM has proposed to liberalize export of agri-commodities but stability of trade policy in respect of agri-commodity is required Earlier, a more “consumer-centric” approach was adopted to deal with the price hike situations –– DFI Committee feels that a more “farmer centric” approach is required to give farmers the advantage of good domestic and foreign prices 22,000 Rural Haats Gramin Agri Markets 1. Benefitting more than 86% small and marginal farmers Issues Harmonization of the various product standards and grading parameters adopted by different agencies (BIS, APEDA, FSSAI, Agmark, etc.) - pre-requisite to creation of a NAM which works on the online platform Benefits 2. Electronically linked to e-NAM and exempt from regulations of APMCs 3. Agri-Market Infrastructure Fund with a corpus of Rs 2,000 crore will be setup for developing and upgrading agricultural marketing infrastructure
  13. 13. Prime Minister’s Krishi Sinchai Yojna 13 0.0 2000.0 4000.0 6000.0 8000.0 10000.0 Allocation to Krishi Sinchai Yojna 2013-19 2013-14 2014-15 2015-16 2016-17 2017-18 BE 2017-19 RE 2018-19 BE Targeted – 96 districts Installation of Solar Pumps for irrigation PMKSY – one of the key schemes aimed at Doubling Farmer Income by 2022 PMKSY launched in 2015 to massively boost the coverage of irrigated area
  14. 14. Implementation Failure • Need to build system to allow farmers to access credit –liberalise to allow farmers to access short- medium-long term credit • Small and marginal farmers will benefit from efficient marketing only if they have holding capacity through pledge finance (post-harvest loans against produce as collateral). DFI recommendation not implemented Conclusions 16 Broadly follows the Policy Recommendations of DFI Committee Key Emphasis Crop Diversification Animal Husbandry High Value Crop Fishing Incentives for production beyond crop agriculture: Extending the facility of Kisan credit to fisheries and animal husbandry farmers
  15. 15. Infrastructure 17
  16. 16. Infra. Schemes with Highest Expenditure Shares planned for 2018-19 18 National Highways Authority of India including Road Works 39% Pradhan Mantri Awas Yojna(PMAY) 15% Pradhan Mantri Gram Sadak Yojna 10% Metro Projects & MRTS 8% Urban Rejuvenation Mission: AMRUT and Smart Cities Mission 7% Bharatnet 6% Integrated Power Development Scheme 3% Police Infrastructure 3% Others 3% Infrastructure a major growth driver of the economy Infrastructure allocation: 2018-19 - Rs.5.97 lakh crore 2017-18 – Rs.4.94 lakh crore
  17. 17. Key Trends in Infrastructure 19 CAPEX for NEW PROJECT declining precipitously during quarters of 2017-18 STALLED PROJECTS shows much variation during quarters of 2017-18. Source: CMIE, Economic Outlook. 4.03 2.12 1.21 0.88 0 1 2 3 4 5 March_2017 June_2017 Sep_2017 Dec_2017 New Projects (Rs. trillion) New projects 0.74 2.67 0.67 0.93 0 0.5 1 1.5 2 2.5 3 March_2017 June_2017 Sep_2017 Dec_2017 Stalled projects (Rs. trillion)
  18. 18. Boosting Rural Infrastructure 30% increase in rural infrastructure spending as compared to previous year to Rs. 14.34 lakh crore (employment – 321 cr person days; rural roads- 3.17 lakh kms; toilets – 1.88 cr; Electric connections – 1.75 cr) Connect agriculture markets, food parks, ground water development, electricity for all Under PMGSY, close to 57,000 km roads will be built with a total cost of Rs. 19,000 crore Rural housing catalytic to reviving industries in the infrastructure segment Construction of 51 lakh rural houses in 2017-18 and another 51 lakh rural houses 2018-19 - huge boost for the construction sector Five lakh Wi-fi hotspots to provide broad band access to 50 million rural citizens RURAL SPENDING GRAM SADAK YOJANA AWAS YOJANA DIGITAL INFRASTRUCTURE
  19. 19. Convergence of Rural and Urban Infra. 21 Major push to develop rural infrastructure – Improve the physical and digital connectivity between rural and urban areas Schemes Description Budget Allocation 2017-18 2018-19 National Highways Authority of India including Road Works Promote economic and social well-being to improve quality of life through seamless road networks 64483 70544 Shyama Prasad Mukherjee Rurban Mission Aimed at stimulating local economic development, enhancing basic services and creating well planned rurban cluster 1000 1200 Regional Connectivity Scheme Seeks to air connect India’s small towns at affordable prices 0 1014 Sagarmala Enabler of other government initiatives such as Dedicated Freight Corridor, UDAN-RCS. Improves Rurban infrastructure through road, rail and inland 600 600 Promotion of Digital payment Govt’s push towards Digital Technologies to bring the unbanked adults inside the regulated financial system 0 596
  20. 20. Push towards DIGITAL infrastructure 22 • Flagship Govt. Initiatives : Start Up India, Make In India, digitally integrated now, through use of Machine Learning, Artificial Intelligence, Internet of Things, 3D Printing. • Increase Digital footprint in Education: Upgrade Skills of Teachers using digital portal (DIKSHA), From “black board” to “digital board” in classrooms • Push towards promotion of Digital Payments 0 100 200 300 400 500 600 700 2016-17 2017-18 (BE) 2017-18 (RE) 2018-19 (BE) Promotion of Digital payment ( in Rs. Crores)


  • Allied – Fisheries, animal husbandry, forestry and logging
    2017-18 is estimated – Advance estimate
  • 7 Schemes account for 95% of the budgetary allocation for agriculture in 2018-19 Budget
  • This is for your reference: 1. Interest Subsidy for Short Term Credit to Farmers - Rs 15000 cr - 24.36%
    2. Green Revolution – Rs. 13909 cr - 22.6%
    3. Crop Insurance Scheme – Rs. 13000 cr – 21.1%
    4. Pradhan Mantri Krishi Sinchai Yojna – Rs. 9429 cr - 15.3%
    5. Deen Dayal Upadhyaya Gram Jyoti Yojna – Rs. 3800 cr - 6.2%
    6. White Revolution – Rs. 2220 cr - 3.6%
    7. Price Stabilisation Fund – Rs. 1500 cr - 2.4%
    8. Others (consist of Crop Science, Agricultural Universities and Institutions, Blue Revolution, Green Energy Corridors - Grid Interactive Renewable Power) – Rs. 2728 cr - 4.43%
  • MSP for all unannounced kharif crops to be set at least one and half times of their production cost – this was also done for the majority of rabi cops earlier
    This should be a welcome move since low prices of crops were a major issue for farmers, which even led to protests
    Farmers will be able to reap benefits via direct procurement of crops or by paying them the difference between MSP and market prices
    NITI Aayog will be responsible for placing a proper mechanism in place
    But this scheme is misleading since it doesn’t use the comprehensive “C2” costs as the benchmark for calculating returns – this uses the “A2 + FL” which is paid out costs on inputs plus an imputed value of family labor
  • BIS Bureau of Indian Standards
    APEDA – Agri Processed Foods Exports Development Auhtority
    FSSAI – Food Safety and Standards Authority of India
    Agmark – quality marking o
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