Financial Daily from THE HINDU group of publications
Tuesday, Jul 13, 2004
Industry & Economy
Agri-Biz & Commodities - Corporate
Budget makes farm-linked businesses smile
Shyam G. Menon
Mumbai , July 12
IN the first few hours after the Union Budget, the thin line between a grin and a groan seemed a business link to agriculture. From within the automobile sector, Tata Motors offered a guarded view while Mahindra & Mahindra (M&M), which has the benefit of market leading presence in tractors, was jubilant.
On Thursday, the Finance Minister fully exempted tractors from excise duty.
"Diwali seems to have come early for those involved in the agricultural and road transportation industries! As I write, it's not yet clear whether inputs will also be excise-free, but even so, the excise exemption for tractors should lead to a significant expansion of demand in the industry.
"Bolstering that prognosis is the doubling of agricultural credit and the fillip given to rural water conservation and other infrastructural projects. All in all, just what the doctor ordered for the ailing farm sector. The auto industry may have been hoping for more direct sops, but the combination of a higher deduction for R&D, a stable rate of peak import duty and a reduction in import duty on steel will be strongly positive for domestic automobile companies.
"The most important achievement however, is the pruning of the projected revenue and fiscal deficits. Globally, this will revive interest in the Indian economy," Mr Anand Mahindra, Managing Director, M&M, said in an official statement. According to Mr Prasad Menon, Managing Director, Tata Chemicals Ltd, "The Budget has laid great emphasis on both rural development and agricultural infrastructure. There are specific plans laid out in the areas of rural credit, crop insurance, crop diversification, free movement of agri produce, water usage, etc. This is bound to make Indian agriculture more productive and competitive and this will have a spin-off on all players in the agri business sectors including input suppliers."
Most in the industry concede, there hasn't been a Budget in the recent past that dwelt so much on agriculture and the rural economy. "It is a departure from the kind of sectors budgets used to focus on till now," Mr Kairus Vakharia, CEO, Mahindra Shubhlabh, said.
Yet questions remain.
For instance, the Budget talks of a major boost to rural lending. But can lending happen if recovery mechanisms are inadequate? Poor recovery mechanisms have traditionally been thebane of bank assistance to the rural sector. The required legislative mechanisms are still not in place, one industry official noted. Without means of recovery being put in place, it is hard to imagine rural lending registering a sharp upturn.
Further, the typical institutional lenders to agriculture are private banks, public sector banks and co-operative banks. Of these, private banks lend little. From the latter two, co-operative banks, at least some of them, are known to be in an unhealthy condition. That shifts the bulk of the task to public sector banks, in retrospect a contraction of the actual number of banks that can potentially lend.
There also appeared no mention of rural electrification schemes (the availability of power and its tariff level are crucial to agriculture) or for that matter anything on village roads. As for repealing the APMC Act, that is a known thing, its successor already drafted but still being discussed by the States. So, the value of its mention is at best one of indicating direction for the sector.
Perhaps the biggest worry stems from agriculture being largely a State subject with clear limitations to how much the Centre can design. Officials say the Government has adopted the right approach by deciding to recharge old water bodies. In fact, it is laudable that water shortage in the interiors is being addressed both from the irrigation and drinking water perspective.
But beyond pilot project and into the bigger numbers, does not the real work lie with the States?
Last but not the least, even as details of the Budget are awaited, there were musings by Thursday evening that somehow all the good news on agriculture did not have anything specific on private sector participation in it or its co-operation with public sector players in the field.
Conclusion therefore, it is nevertheless a beginning made. "I am optimistic," Mr Vakharia said.
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