AS expected, the federal budget has left everything as it was on the agricultural subsidies front. Finance Minister Dr Miftah Ismail summed it up when he told the National Assembly in his budget speech, “The incentives announced in the last budget, including in agriculture credits, exemption of customs duty on harvesters, the removal of GST on the import of sunflower and canola seeds, etc, would continue next year as well.” But he scrupulously avoided the mention of new measures.

He explained that fiscal constraints did not allow the government to be as lavish as it has been for the last few years, saying: “After the 7th National Finance Commission award, fiscal space of the federation shrank by 10 to 11 per cent while expenditure could not be reduced. Provinces have received an additional transfer of Rs2.5 trillion in the last eight years which otherwise could have been spent by the federal government.”

Second reason to avoid expansion in subsidies, as stated by the minister, was a paradigm policy shift: “A radical transition of the agriculture sector can only be achieved by moving away from a subsidy-driven approach to a market-driven dynamic policy regime. Going forward, the federal government will leave the business of subsidies to provincial governments (where additional money is) and focus on building a conducive policy environment for research and development, productivity enhancement, market access, improving management, labour practices and technology.”

The budget, however, took two important measures. First, it reduced the general sales tax (GST) on fertiliser to 2pc, instead of 5pc on urea and 9pc to 11pc on other varieties of fertiliser. Secondly, it created two federal funds, each with Rs5 billion, for promoting research and technology in the sector.

The reduction of GST on fertiliser is also a trade-off: the federal government offered a subsidy of Rs52bn to the sector when it reduced GST from 17pc to 5pc. It has now further cut GST by another 3pc, squaring off the subsidy amount. So, it is basically an extension of last year’s subsidy regime.

Another perfunctory measure taken this year was increasing credit line (partially subsidised) for the sector to around Rs1.1 trillion — up from last year’s Rs1tr. The increase is more of a theoretical exercise, as 52 participating institutions have never fully exhausted it — neither for the farm sector nor for the non-farm sector. Even during this fiscal year, total disbursement has only been Rs570bn so far (as indicated in the Economic Survey 2017-18). Of this amount, Rs261bn (or 45.8pc) went to the farm sector and Rs309bn (or 54.2pc) to the non-farm sector.

If the government’s avoidance of new subsidies was expected, so was the reaction of farmers, who were quick to reject new proposals. In fact, they announced a charter of demand before the budget which not only included support price for four major crops but also more subsidies for reducing electricity charges and tax cuts and additional money for off-setting increase in international prices of inputs.

However, none of the demand was met. Khalid Khokhar of Kissan Ittehad, the most active farmers’ organisation, wondered how the federal government can leave things to provincial governments, which are its primary responsibility.

“The agriculture sector is not only a business but national food security as well. Can it be relegated to provinces? How would provinces cut federal taxes or duties being charged on the ports? The federal government, instead of leading the sector, is now trying to get rid of it on different excuses,” he said.

He said that it should not be forgotten that the sector landed back on its feet only because the federal government led the initiative and provinces followed. The federation has also claimed credit for the result, ie an 18-year-high growth of 3.8pc in the agriculture sector. “Why squeeze all those drivers of growth which made this performance possible and shift the responsibility on provinces?” he wondered.

“The crop sector responded to federal efforts of reduction in the cost of production. Now, with that cost of production going further up because of different international and domestic variables, the federation is backing off,” he regretted.

One can also point out weakness of the federal government’s argument about expecting provinces to finance the new subsidy regime. The sector was devolved to provinces after the 18th Amendment, but they never created institutions necessary for its performance owing to financial and time constraints.

The sector has practically been hanging in the air, as the federal government wound up institutions. The huge additional funds received by the provinces were spent on other politically lucrative programmes rather than agricultural infrastructure and subsidies.

Published in Dawn, The Business and Finance Weekly, April 30th, 2018

Opinion

Editorial

‘Source of terror’
Updated 29 Mar, 2024

‘Source of terror’

It is clear that going after militant groups inside Afghanistan unilaterally presents its own set of difficulties.
Chipping in
29 Mar, 2024

Chipping in

FEDERAL infrastructure development schemes are located in the provinces. Most such projects — for instance,...
Toxic emitters
29 Mar, 2024

Toxic emitters

IT is concerning to note that dozens of industries have been violating environmental laws in and around Islamabad....
Judiciary’s SOS
Updated 28 Mar, 2024

Judiciary’s SOS

The ball is now in CJP Isa’s court, and he will feel pressure to take action.
Data protection
28 Mar, 2024

Data protection

WHAT do we want? Data protection laws. When do we want them? Immediately. Without delay, if we are to prevent ...
Selling humans
28 Mar, 2024

Selling humans

HUMAN traders feed off economic distress; they peddle promises of a better life to the impoverished who, mired in...