CNBC-TV18 shares its special report with domain-b

Finance minister P Chidambaram, has agriculture on top of the agenda so as to achieve overall growth. He believes that policy makers must hold the first charge on the country''s resources. He said, "The agriculture sector has witnessed sharp ups and downs. Average growth during the Tenth Plan period, which is 2.3 per cent, is below the desired level of 4% a year."

The global commodity markets up to an extant impacted the domestic agriculture, which has grown below the desired results, as well; high prices have exerted pressure, while supply constraints have hit essential commodities like wheat, pulses and edible oil. Consequently, average inflation in 2006-07 is estimated at between 5.2 per cent and 5.4 per cent, which is higher than last year''s 4.4 per cent.

The government is concerned over inflation. "I wish to reiterate the government''s concern over inflation, the FM said pointing out at the facts that the Centre had already taken measures on the fiscal, monetary and supply sides to maintain price stability. He added that if required the government will not hesitate to take more measures.

He realises the fact that farm supply imbalances can play spoil sport to the immense growth opportunities that India has, which can be avoided if cheaper credit is available to the farmer on time. He said, until December 2006, 53.37 lakh new farmers have been introduced to the institutional credit system.

He added, "For 2007-08, I propose to fix a target of Rs225,000 crore as farm credit and an addition of 50 lakh new farmers to the banking system. The 2-per cent interest subvention scheme for short-term crop loans will continue in 2007-08, and I am making a provision of Rs1,677 crore for that purpose."

Laying much emphasis on the sector, the FM proposes to set aside Rs 225 lakh crore for rural credit, of which farm credit is a part. Farm credit according to the FM, "is growing at a satisfactory rate. The goal of doubling farm credit in three years was achieved in two years." The target of Rs175,000 crore, which was the target for 2006-07, will be exceeded comfortably; it is now likely to touch Rs190,000 crore.

The FY08 target for farm credit is set at Rs225,000 crore. He plans to introduce 50 lakh new farmers to the banking system. The 2-per cent interest subvention scheme for short-term crop loans will continue in 2007-08, and he plans to make a provision of Rs.1,677 crore for that purpose.

According to the FM, as the volume of farm credit increases and the Vaidyanathan Committee recommendations for reform of rural credit cooperatives are implemented, the demand for refinance will increase. In order to augment its resources, he proposes to allow NABARD to issue rural bonds to the tune of Rs 5,000 crore. These bonds will be guaranteed by the Government and will be eligible for suitable tax exemption.

Under the rural infrastructure development fund (RIDF) sanction and disbursal of funds to State governments continue. In 2006-07, out of a corpus of Rs10,000 crore, NABARD has so far issued sanctions for Rs8,440 crore and will achieve its target. Keeping in view the growing demand for these funds, he proposes raising the corpus of RIDF-XIII in 2007-08, to Rs12,000 crore. "I would urge state governments to use these funds primarily in the distressed districts of the state."

As far as agricultural insurance goes, the national agricultural insurance scheme, or NAIS, will be continued in its present form for kharif and rabi 2007-08. He proposes to make a provision of Rs500 crore for the scheme. He also talked about the pilot weather insurance scheme being run by the Agricultural Insurance Corporation, or AIC. Work on the project has been on since Kharif 2004 and according to the FM, "it appears to be a more promising risk mitigation scheme."

Hence, the government will ask the AIC to start a weather-based crop insurance scheme on a pilot basis in two or three states, in consultation with the state governments concerned, as an alternative to the NAIS. The scheme will be operated on an actuarial basis with an element of subsidy, for which Rs100 crore will be allocated in 2007-08.

The FM hopes to target the many ills of the agriculture sector such as stagnation in production activity, as well as the production of pulses, certified seeds for grains, edible oil, etc. He proposes to set up integrated development programs as well as scaling up production. He proposes to set up special funds for rejuvenation of plantation crops.

While the outlay for irrigation is set at Rs11,000 crore, subsidy to the fertiliser sector has been hiked to Rs22,452 crore from the current Rs17,253 crore. Further, the duty on agro-processing machinery has been reduced from 7.5 per cent to 5 per cent. Peak agriculture customs rate too has seen a decrease - it has been cut to 10 per cent from the current 12.5 per cent.

Under the Bharat Nirman programme, which according to the FM remains the cornerstone of the Government''s policy, additional irrigation potential of 2,400,000 hectares, including 900,000 hectares under AIBP, will be created.

Commenting on the Budget implications, Anil Agrawal, Director of Sanwaria Agro Oils Ltd said, "The FM has stressed that agriculture sector is the main focus of the government, which is very promising for us. A very good thing is that the government did not levy excise duty on edible oils, as was expected in some quarters. Import duty on food processing machinery has also been reduced." The FM has reduced the duty on agro-processing machinery from 7.5 per cent to 5 per cent.

Though Agrawal termed it as a "good" Budget, as service tax was not increased, in addition to which, the zero-excise duty on bio-diesel would also help, he was not happy with the government removing 4 per cent counter veiling duty on edible oils, which he said, "used to protect domestic suppliers from international competition."

However, for Dinesh Shahra, managing director at Ruchi Soya Industries Ltd, the 4 per cent specialised CV duty will be beneficial, "as we are the largest branded player in edible oils." He added that the reduction of customs excise duty on sunflower oil from 65 per cent to 50 per cent will prove positive for his company.

On the Budget''s focus towards the agriculture industry, Shahra, said, "The impetus given to agriculture will have a positive impact on food production and augur well for the farmers. Being one of the largest players in agriculture business in India the thrust on this industry will benefit us immensely." The excise duty withdrawal on food processing and reducing it on plastic, too will help the company reduce packaging costs.

The FM proposes to also increase the branches of the ''agriculture technology management agency''(ATMA) that is now in place in 262 districts, to another 300 districts in 2007-08. He plans to enhance the provision for the institute from Rs50 crore to Rs230 crore next year.

He plans to also subsidise the fertiliser sector. "I had budgeted Rs17,253 crore towards fertiliser subsidies in 2006-07. According to revised estimates, this will rise to Rs22,452 crore and there is a demand for more money. While fertilisers should indeed be subsidised, we must find an alternative method of delivering the subsidy directly to the farmer."

The FM further added that the fertiliser industry has agreed to work with the Department of Fertilisers to conduct a study and find a solution. Based on the report, the Centre intends to implement a pilot programme in at least one district in each State in 2007-08.

At the moment, Rajen Shah of Angel Broking said, "We like Finolex Industries in this space, which is into manufacturing of PVC and setting up irrigation systems. We also like tractor stocks at the current levels," as the Budget, according to him focuses "clearly on the agricultural sector, where we are clearly seeing the outlay on irrigation being hiked up about 35% from Rs7,000 crore to about Rs11,000 crore; the farm credit is being hiked up from Rs195,000 crore to about Rs225,000 crore."

He saw all the companies associated with the agriculture sector benefitting directly from the thrust on agriculture. He said that those companies, which are associated directly or indirectly with the agricultural sector should benefit immensely. "Fertilizer companies should also do pretty well because the valuations at these levels are very compelling - at about six to seven times. So I think these are the companies, which one should look at and over the next two to three years clearly the focus is going to be on the agricultural sector. There is immense opportunity in the agricultural space; that is why we would look at it at this juncture," Shah said.

Later in the day, the finance minister on Doordarshan gave the rationale behind the stress on water and seeds in the Budget so that production and productivity in the agricultural sector can increase. Further on, he reminded the Rs11,000 crore outlay for the AIBP, which he said was a huge jump. Explaining the water-harvesting plan, he said, "Then we have the new ground water recharge programme. We want to build 70 lakh structures on land belonging to farmers; 20 lakh of that is on the land of small and marginal farmers and each structure will cost Rs4,000. That is to conserve every drop of water that falls on the land." Apart from that there are other irrigation programmes also underway and this year, he said, "we will have 24,00,000 hectres irrigated additionally. Water is being taken care of."

As far as the issue of seeds is concerned, he said that in the case of wheat and paddy some amount of seed replacement was not entirely satisfactory, "but there is a reasonable amount of seed replacement." However, the replacement of the pulses'' seeds was very poor; there is hardly any seed replacement in pulses. Farmers are using traditional seeds, which means productivity is low; therefore, we need a crash programme to double the availability of certified seeds. Equating the situation to yesteryears, he said, "I had accepted this challenge three years ago for farm credit. I said I will double farm credit in three years."