India: Budget 2018 to light up agriculture industry

Date:01-29-2018

According to analysts, the Budget ahead would mark more allocations towards rural, agriculture and allied sectors. They see a rise in minimum support price (MSP) for food grains and pulses, increase in farm loan limits, incentives for investments in expansion of urea capacity and higher allocation on micro irrigation systems (MIS). 

MGNREGA allocation last year came in below expectations and a higher spending on this front could lift the overall sentiment, stated Nirmal Bang Institutional Equities. A likely investment on skill development schemes would bear fruit in the long run, it said.

Edelweiss Securities too expects higher allocation on micro irrigation, which may spur demand for MIS that saw an allocation of Rs 7,000 crore in Budget 2017. Besides, interest rate subvention and higher spending on rural infrastructure could make it to the coming Budget.

The FM's speech on the D-Day can revolve around issues such as adequate allocation of funds towards fertiliser subsidies and clarity on direct benefit transfer (DBT). The brokerage believes that the government would come good on allocation, but there may not be any announcement on DBT.

In Budget 2017, the government announced a subsidy provisioning of Rs 70,000 crore. If raised adequately this time, it will help bring down working capital for fertiliser companies.

Motilal Institutional Equities, in another note, said the backlog of existing fertiliser subsidy at Rs 23,000 crore, if cleared before the implementation of DBT, will provide a significant fillip to the industry. The companies would receive subsidy in their account within 7 days of completion of sale to the farmer, it noted. Coromandel International is one company that may benefit from any such announcement.

With a greater demand on the government to increase MSP on food grains and pulses, agrichemical companies will also be benefited.

Increased investments in agricultural infrastructure such as irrigation facilities, warehousing and cold storage may drive farm income higher, Motilal Oswal's report suggested.

Short-term farm loan limit is expected to be raised to Rs 5 lakh from Rs 3 lakh currently.Reforms targeted at improving farm income or yields like electronic linkage of mandis under e-NAM, higher MSPs and a likely increase in rural allocations, in addition to any amendment to new investment policy and benefits and incentives for investments towards expansion of urea capacity are seen as positives for agri-chemical players, the brokerage house said.