Around 73 per cent of India’s agriculture budget is allocated for subsidies and welfare schemes: ICRIER

A significant portion of India's agriculture budget, approximately 73%, is allocated towards welfare schemes and subsidies, according to a report by the Indian Council for Research on International Economic Relations (ICRIER). These initiatives, such as the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and subsidies for food and fertilizers, account for a substantial ₹4.55 trillion, according to the report.

"The budget for the rural-agrarian sector is heavily skewed towards welfare measures, with food, fertilizer, and MGNREGS accounting for ₹4.55 trillion, or 9 per cent of the total budget expenditure. The focus on welfare measures, which comprise the bulk of the budget for the rural-agrarian sector, requires immediate rationalization," the report said.

The Indian Council for Research on International Economic Relations released a report by agriculture economists Ashok Gulati and Purvi Thangraj on agri-rural allocation in Budget 2024.

The report says food and fertilizer subsidies accounted for more than 50 per cent of the Union Budget for the rural and agrarian sectors in FY25.

According to the report, ₹6.2 trillion for the agriculture sector constitutes 13 per cent of the overall budget of ₹48.2 trillion in FY25. Agriculture, however, contributes 18 per cent to GDP.

The food subsidy accounts for 30 per cent of the ₹2,05,250 crores allocated to the agriculture sector. The fertilizer subsidy accounts for 24 per cent, with an allocation of ₹1,64,000 crores.

The report also states that these initiatives aimed at welfare and growth have not addressed the underlying issue of low rural incomes. Currently, the average income for a rural family is less than ₹20,000 per month.

Low incomes in agricultural households impact the demand for non-agricultural goods and further limit the growth of the manufacturing sector. Rising rural incomes will have a major role in the growth of the manufacturing sector, which can be achieved through investments in agriculture research and development, irrigation and skill development instead of solely relying on traditional welfare schemes, the report says.

Demand in Rural markets has been a significant concern for longer than a year, despite urban markets' more than made up for increased spending on packaged items.

Low incomes are a concern in rural India. According to the household consumption survey released by the Ministry of Statistics and Programme Implementation’s (MOSPI’s) National Sample Survey Office (NSSO), a person living in rural India spent ₹3,773 a month on average as consumption expenditure in 2022-23 while her urban counterpart spent ₹6,459. Rural demand and incomes mainly depend on erratic monsoons, higher inflation, and unseasonal rains leading to crop damage. However, rural demand is marginally improving, according to reports.

According to Gulati, every rupee spent on agricultural research and development yields much better returns than fertilizer subsidies, power subsidies, education, or roads. Hence, expenditure on subsidies should be rationalised, and the government should invest in developmental expenditures such as agricultural research and development.

Investment in research and development may also lead to adopting climate-smart practices, further improving crop yields and resilience.

In Budget 2024, Finance Minister Nirmala Sitharaman proposed several measures to boost the agriculture sector, including introducing new high-yield variety seeds, provision for natural farming, promoting self-sufficiency for oil seeds and pulses, and digital public infrastructure for farmers.