SBI Budget Expectations Around Agro Practices | NDTV Profit
Category
🗞
NewsTranscript
00:00As the new Narendra Modi government gets into gear, the full union budget for F5 2025,
00:05which is scheduled on 23rd of July, will be the government's first big economic statement.
00:11The industry's expectations are centered on how the government will resume its path of strategic
00:16growth and sustainable development. We have with us Soumya Kanti Ghosh, Group Chief Economic Advisor
00:21of SPI, now joining us to take us through what's going to be critical and what's the want and
00:27what's the need of the hour for India. Thank you Mr. Ghosh for joining us this morning.
00:32Mr. Ghosh, of course, I'll delve into your report a little bit more but to just set up
00:36this conversation, the big focus has been the big bonanza from the RBI. Last time around at
00:43the interim budget, there was talk about what global investors could do to spruce up a balance
00:47sheet. We've got included on the JP Morgan Bond Index, not too much in terms of flows just yet,
00:53but where do you think the government's stance of fiscal prudence will be and how critical is
00:59the fiscal consolidation path, not just out a year but over the medium term going to be?
01:06Yeah, thank you for having me on the show. I think the fiscal path is always important for
01:12a country like India and given the fact that we have passed through periods of significant
01:19uncertainty in the last three to four years, the fiscal situation actually was,
01:25we were on a path of consolidation but unfortunately the pandemic had put us back.
01:30But the good thing is that we have pulled back the deficit from a high of 9.2% in the pandemic year
01:36to 5.6% this year and hopefully the budget could take it closer to 5% if not lower.
01:44Of course, the RBI dividend is going to act as a counter-cyclical buffer to the fiscal policy,
01:52which is the need of the hour and given the fact that India has been rewarded as a country in
01:59terms of global capital inflows, in terms of an attractive investment destination,
02:05in terms of the movements in the interest rates and also in terms of investment intentions.
02:12I think the government cannot abandon the path of fiscal consolidation. The only difference
02:19which we can see is that maybe the government could go a little slow on the fiscal consolidation
02:24instead of aggressive consolidation. It can still pursue to the market that it is clear on its end
02:32of taking the fiscal deficit to 4.5% by FY26. I don't know whether the government wants to take
02:38it lower or is there a need to take it lower. But even if the government and we believe that
02:43the fiscal deficit could be set a little below 5% in the budget, if not at 5%, to show the intent
02:50that the government is keen on consolidation of fiscal deficit. One interesting point which I'd
02:55like to point out is that in the past, if you look into the interim budget and the actual budget,
03:00for the last three elections, beginning from FY4, I think every time the actual fiscal deficit
03:08has been different from the interim fiscal deficit by not more than 10 to 20 basis points.
03:12So, by that logic, the fiscal deficit should be close to 5% or maybe a little 10% lower than the
03:195% in the budget which is going to be presented on July 23. Mr. Ghosh, I'm going to quickly go
03:26down to your suggestions because I think that's what's important for us to hear and for policy
03:30makers to hear as well. You do say that MSP politics is stifling the continued shift to
03:37smart and emerging agriculture practices. You want to elaborate on that and tell me what would
03:42you like seeing being done by the FM in the next couple of weeks in terms of a budget announcement
03:49around this? See, I think if you look into the total value of the agricultural output in India,
03:56it is around 56 trillion. This is the FY23 numbers as per CSO. Out of this, 17% is only the food grain
04:05share of which 6% is supported by MSP. So, 6% of 17% of 56 trillion, that makes it around 3.5
04:14trillion which is the MSP support. Even after the government procuring, I think more than 90%
04:20of the rice from Punjab and more than around 75% of the wheat from Punjab. Of course,
04:30there are other states but important to say that the Punjab and Haryana actually corner the maximum
04:35share of procurement in terms of production. So, my simple point is that while MSP as a policy
04:41is good but possibly, if there is too much emphasis on MSP, on the 17% out of the 100%
04:52share, you are actually missing out on other sectors like the livestock, the fruit, vegetables
04:58and the cash crops. These together constitute 83%. So, our simple suggestion which we have
05:11put out in the budget is that while MSP is important to support a section of farmers
05:17but it is also important that we support the agricultural value chain in that 56 trillion
05:24division which we have given out. So, this is basically and I think some of the policy changes
05:29which we have suggested in the budget may not be in the name of the government but at least
05:34some of these policy changes are also in the name of the Reserve Bank of India. So, my simple
05:38suggestion is that if there are some small regulatory changes which are low-hanging fruits,
05:44the agricultural sector can actually look into a decisive growth path in the next decade or so.
05:50Just for your information, I think every day if you open the newspaper, you will find that there
05:55is a significant number of articles on the agricultural value chain but do you know that
06:00the agricultural value chain is not defined in the Indian context? So, no one knows where the
06:04financing or the supplying of finance would start in that value chain. So, these are very
06:10simple things which could be done in the budget or outside the budget so that the rural sector
06:17gets a push. This is such a good point but let's talk actionables, right? I mean, I am sure this is
06:22a want and there is a need to address that 83% of the agriculture space that currently is being
06:28ignored because the focus is so much more on MSP only. But in terms of actionables, while the
06:34policy and the mindset needs to be changed, what are those actionables that you are looking for
06:39at this budget or even outside the budget like you said to boost and spruce up the rural economy?
06:44So, for example, the first thing is that there is a circular in the RBI and I think we see that the
06:51government is also aware of that which allows the farmers to be sub to given an KCC loan of only up
06:58to 1.6 lakhs. So, the RBI circular said that loans beyond 1.6 lakhs will require collateral.
07:08A simple thing is that now land records are digitized across states. Why that cannot be
07:13used as a collateral to give a loan above 1.6 lakhs to the farmer? So, this is the first point.
07:19The second point is that a simple suggestion which I am mentioning and I think this could be done
07:25on a very quick basis is that whenever you take a loan from a bank or a financial institution,
07:34the way if you service your interest, the loan remains a performing account.
07:38But for the agricultural sector, what happens is that every year the KCC loan,
07:43the farmer has to repay back the interest and the principal amount fully so that he can get that
07:49up to 1.6 lakh loans for the next year. This has been in practice for the last 50 years or so
07:56when Indian economy got independence, but I think the high time has now come to change this
08:04rule. Basically, if the farmer can service the interest rate, he should continue to get the
08:10principal amount as loan also every year. So, this is another policy.
08:14The other policy is that we can talk about agriculture value chain which is also in the
08:18government domain is that define an agricultural value chain. How do you define an agricultural
08:22value chain? For example, you define that who will get the finance, the input supplies and
08:28the others. So, clearly define that the agricultural value chain in the process so
08:33that it is easy for the banks and the financial institution to supply and make this value chain
08:42fully operative over a point of time. Right now, we only know that the value chain has to be
08:47supported, but no one knows where the value chain actually starts.
08:51Where it starts with the procurement of seeds, where it starts with the procurement of inputs,
08:55it is absolutely not clear. So, I think this was submitted to the government in a 2021 report.
09:00The report has 13 to 14 suggestions which we have listed in our report and I think even if
09:05government does 40 to 50 percent of that in conjunction with the reserve bank,
09:09I think the agricultural sector can get a boost. And please note, these are all
09:12executive decisions. This doesn't have to go through the parliament in terms of an approval.