The capital formation in agriculture has significantly stagnated, it said.
“The objective of doubling farm income by 2022 can be achieved by providing an incentive to agri term loans for investment purpose through an enabling mechanism of either interest subvention or a credit guarantee fund,” SBI said in its research report Ecowrap.
The coming budget could have a plethora of measures for the agriculture sector. For the long term benefits for the sector, the government must make a statement of intent to increase the income support from Rs 6,000 to Rs 8,000 over a period of five years, which will provide a feel good factor and boost consumer sentiments.
“We believe that income support is the most crucial scheme in order to improve the income and subsistence level of 14 crore farmers in the country,” it said.
The report said income support to the farmers should be provided in higher magnitude for a prolonged period, at least for five years.
As per the calculation done by the report, if the income support is progressively increased from, say, Rs 6,000 to Rs 8,000 in the terminal year and reduce the fiscal deficit to 3 per cent in 2024, the additional cost for 14-crore farmers over the baseline estimates could be Rs 12,000 crore per annum, same as the revised estimates if only Rs 6,000 was provided to all 14 crore during the next five years.
“As growth comes back to the system, fiscal deficit could actually reduce to 3 per cent of GDP in FY24 with income support as percentage of GDP also declining from 0.40 per cent to 0.34 per cent,” it said.
It said financial institutions and government can lend their helping hands to the farmers by providing market support starting from cultivation to sales.
The report said Pradhan Mantri Fasal Bima Yojana (PMFBY) currently covers mainly three types of crops-food crops, oilseeds, annual commercial/horticulture crops, which cover only 30 per cent of the total crop loans given by banks.
“Government should cover all types of crops under PMFBY, which will help banks to manage the risks,” the report said.
The report said government must develop efficient global value chains and liberalise land lease markets across all states, which should encourage contract farming on a medium to long-term basis.