Subsidy schemes account for 60pc of govt farm budget

- POST REPORT, Kathmandu

Jul 15, 2014-

The government has set aside most of the farm budget to provide subsidies to farmers to enable them to cut production costs and put them in a better position to compete with heavily subsidized Indian agro products.

The Ministry of Agricultural Development said that more than 60 percent of the agricultural budget would be spent on various cash subsidy schemes in the next fiscal year.

In the mid-1990s, the government began reducing financial backing for the agricultural sector in line with shrinking donor support in the name of economic liberalization. However, in 2008, it reintroduced subsidies on fertilisers following the global food crisis.

The government has been gradually expanding subsidies to the farm sector since the last two years to boost production and productivity and focus on targeted programmes to ease youth access to agricultural activities in a bid to stem labour outflows that have severely hit the farm sector.

“The existing subsidy regime in agriculture is still nominal, but it could be vital to encourage farmers who have been struggling with losses or falling profits due to an increased cost of production,” said Ram Prasad Pulami, joint secretary at the ministry.

“In addition to providing input subsidies, a number of projects have been focused on attracting youths by offering them cash subsidies,” he said. The government has increased the budget allocation for the agricultural sector to Rs 23.28 billion for the next fiscal and declared the next 10 years as Decade of Agriculture Revolution.

One of the government’s ambitious projects is the competitive grants programme that provides subsidies of up to 75 percent to youth farmers for their start-up projects. More than Rs 6 billion has been earmarked for around 16 such projects including the Project for Agriculture Commercialization and Trade.   

The government has allocated Rs 1 billion as an interest subsidy for farmers who take loans from commercial banks. The interest rate set by banks for farm loans is 10 percent while the government has fixed the ceiling at 6 percent. So under the subsidy programme, farmers will pay 6 percent interest while the government will put up the remaining 4 percent.

The budget has allocated Rs 1 billion for subsidies to boost meat production through Sana Kisan Bikas Bank. Likewise, the government has continued its subsidy scheme on the purchase of seeds of maize, paddy and wheat. The budget has allocated Rs 130 million for this scheme which was introduced in the last fiscal year.

Pulami said that the ministry had allocated Rs 870 million for youth focused programmes. Under this scheme, the government will provide Rs 60,000 in the Tarai and Rs 40,000 in the hills as a start-up cash grant to youth who are engaged in vegetable production. “The recipient is required to invest more than half of the amount provided by the government.”

The maximum cash grant has been set at Rs 100,000 for the fisheries sector, Rs 50,000 for mushroom farming, Rs 200,000 for bee rearing and Rs 300,000 for animal husbandry.

The government will also provide subsidies on loans taken for farm mechanization. The ministry has allocated Rs 95 million for this scheme under which the subsidy has been fixed at 20 percent for the import of big machinery, 50 percent for the import of medium range machinery and 75 percent for the import of smaller range machinery.  

Likewise, the government will charge only 1 percent customs duty on imports of farm machinery like hand tractor, power tiller and milling and feeder machines. The government will also provide a 50 percent subsidy to milk producers keeping more than 20 cows of improved breeds.

According to Pulami, the ministry will provide a 50 percent subsidy on seeds and machinery imports for the integrated farming project for soybean and maize. The project has been launched in 42 districts.  

Meanwhile, the government has decided to increase the subsidy on premiums for agro insurance to 75 percent from the existing 50 percent. The government has allocated Rs 60 million for this purpose.

The budget has earmarked Rs 5.48 billion for subsidizing chemical fertilizer for the next fiscal. The government reinstated subsidies on fertilizers in 2009 to boost agricultural production and ensure food security. Acting on conditions laid down by donors, the government started deregulating fertilizer trade in 1997 with subsidies on DAP and potash being removed.

Published: 16-07-2014 09:24

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