Union Budget 2011: Infrastructure bottlenecks continue to remain critical, says Somnath Dey, VP Research, Religare Commodities Ltd

Somnath Dey, VP Research, Religare Commodities Ltd. gives a brief highlight of the three main sectors that have been in focus in Union Budget 2011.

Inflation is still a concern. For controlling high food rise, the Supply has to improve. The High gap between wholesale and retail prices not acceptable. There is shortfall in distribution and marketing systems in Food.

Agricultural growth predicted higher at 5.4%. RBI to take steps to moderate Inflation in coming months. FM expects the Inflation to be lower in the FY 2011-12 with respect to FY 2010-11. Removal of supply bottlenecks would be the prime focus in 2011-12

Focus of the Budget has been on 3 Sectors

1) Improving Infrastructure

2) Focus on farmer development

3) Improving the main concerns of raising Farm productivity and production

Infrastructure

> Rural infrastructure development fund corpus will be raised to Rs 18000 Cr from Rs 16000 Cr.

> A corpus of Rs 2000 cr set aside for additional warehousing capacity

> FII limit in corporate bonds in infrastructure is being raised by additional USD 20bn

> Tax free bonds of Rs 30,000 cr to be issued for infrastructure development. This will cover Warehousing Corporation, NHAI, IRFC and HUDCO.

> There has been allocation of Rs.2.14 cr towards infrastructure development

> Cold storage chains to be given infrastructure status

> Investment in fertiliser to be considered as an infrastructure sub-sector

> Cold storage facilities to be enhanced.

> The Govt plans to create 150 lakh metric tons food storage capacity

Comments: Infrastructure bottlenecks continue to remain critical for the farm sector. As the FM mentioned, ~40% wastage of Food products are there due to this. An effective handling of this issue will hopefully ensure less wastage of the Farm products.

Farmers

> Credit flows to farmers raised from Rs 3.75 lakh crore to Rs 4.75 lakh crores

> Interest subsidy for farmers who promptly repay their loans raised from 2% to 3% thus reducing the effective Interest to 4%.

> The Budget proposes to move to direct cash subsidy for fertilizers and kerosene. Kerosene and fertiliser subsidies will be 'directly transferred' to beneficiaries. The Govt mulls nutrient-based subsidy policy for urea

> Banks will step up direct lending to farmers

> To create Rs 100cr equity fund for microfinance companies

Comments: Direct subsidies for Fertilizers for the end users (ie farmers) will ensure its proper utilization. Increasing subsidy on loans will ensure effective repayment of loans by farmers - thus improving the Supply of Credit by Banks to farmers.

Farm Productivity and production

> Government proposes to promote organic farming methods to improve Farm productivity

> Increase allocation of Rs 400 Cr for Green Revolution

> Rs 300 cr provided to promote pulses cultivation in rain-fed areas. Another Rs 300 cr has been provided to promote
farm product cultivation

> Allocation under Rashtriya Krishi Vikas Yojana to be raised from Rs 6755 crore in the current year to Rs 7860 crore

> The Govt proposes Private investment in Agro Processing should rise

> 50 new food parks to be implemented

> Support for production of nutritious cereals like bajra, jowar, ragi.

> Rs 300 cr to encourage vegetable production and higher income for farmers

> Rs 300 cr to be allocated for enhancing oil palm production

> Provision of Rs 300cr being made to promote production of bajra, jowar, ragi

> To allocate Rs 300 cr for fodder development

> Rs 300 Cr allocation for Nutricereals for higher production through upgradation of Technology and awareness

> Food security bill to be introduced this year

> Agricultural credit limit raised to Rs 4,75,000 crore from Rs 3,75,000 crore

> Proposal to introduce self-assessment of customs duty wherein importers and exporters will themselves assess payment of duty

> Rs 5000 Cr additional corpus to SIDBI for priority sector lending

Comments: Improving farm productivity remains the single most important factor for increasing the production of Food products. With area under cultivation remaining stagnant, it becomes imperative that the productivity should improve. The Fund set aside for this purpose should be properly utilized to ensure more production and higher incomes for farmers. This could have a long term impact in solving the Food problems we are facing to some extent.