Govt lays all bets on the farm
—Focus on farm income improvement. Minimum support prices to be at least one-and-a-half times the production cost for kharif crops. Mechanism to ensure minimum support prices to farmers if market rates fall below the benchmark.
—An estimated Rs14.34 trillion to be spent on creation of livelihood and infrastructure in rural areas by all ministries in fiscal year 2019. Target of institutional credit for agriculture sector raised from Rs10 trillion in FY18 to Rs11 trillion in FY19.
—Cultivation of horticulture crops in clusters to bring advantages of scale of operations and spur establishment of a chain from production to marketing.
—Export of agri-commodities to be liberalized. To set up state-of the-art testing facilities in all 42 mega food parks to encourage exports.
—Subsidy for the fertilizer sector is Rs70,090 crore for FY19, moderately higher than Rs64,999 crore in FY18.
—l The proposed measures can create employment opportunities and improve rural incomes, especially for small and marginal farmers. But the actual extent of government spending to support the roll-out of these programmes is what will determine the extent to which it contributes to a more healthy agricultural sector.
—If agricultural incomes indeed improve, as the government expects, then demand in rural areas is expected to improve not only for farm equipment but also for allied services. According to K. Ravichandran, senior vice-president, group head (corporate ratings) at Icra Ltd, the budget measures can help rural-focused companies in farm inputs, automobile-tractors and two-wheelers, fast-moving consumer goods, and non-banking financial companies including microfinance entities.
—Though the allocated fertilizer subsidy for FY19 is higher than the allocation in FY18, it is still substantially lower than the required amount. According to Icra estimates, there could be a shortfall of around Rs35,000 crore (pending dues). The under-allocation came as a surprise as the government is preparing to roll out direct benefit transfer scheme for the fertilizer sector on a pan-India basis, but without adequate budgetary provision the industry’s working capital cycle could get stretched.
—The lower allocation is expected to put pressure on interest costs of fertilizer companies.
Stocks in focus:
—Stocks of Escorts Ltd and VST Tillers Tractors Ltd, which sell farm equipment and low-power tractors, gained by 3-7%. “The resulting (farm income) growth can incentivize farmers to invest in mechanization to expand the volume of produce from their land parcels,” said Raman Mittal, executive director at Sonalika ITL, a tractor manufacturer.
—Tracking the moderate hike in fertilizer subsidy, shares of urea producers closed sharply lower. National Fertilizers Ltd, Chambal Fertilisers and Chemicals Ltd, Rashtriya Chemicals and Fertilizers Ltd, and Gujarat State Fertilizers and Chemicals Ltd lost in the range of 3-4%.
—Even agrochemical stocks such as Rallis India Ltd, Dhanuka Agritech Ltd and Insecticides (India) Ltd lost in the range of 1-7% as steps to boost farm productivity through usage of better agrochemicals did not find mention in the budget. Also expectations of a tax cut on agrochemicals were not met.
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