Union Budget 2016-17: Will it revive the rural economy?

Arun Jaitley’s budget speech gives the impression that the govt wants to revive rural economy but the numbers need to be read carefully to assess its intent


The budget of the ministry of agriculture has been enhanced from <span class='WebRupee'>Rs.</span>17,000 crore in the last budget to <span class='WebRupee'>Rs.</span>36,000 crore now. Photo: Pradeep Gaur/ Mint
The budget of the ministry of agriculture has been enhanced from Rs.17,000 crore in the last budget to Rs.36,000 crore now. Photo: Pradeep Gaur/ Mint

The budget for 2016-17 comes in the context of a fragile economic situation. It is not just the stress in the rural economy, which has seen a decline in real wages as well as lower farm incomes in the wake of back-to-back droughts. There’s also the slowdown in manufacturing and the stress in public sector banks due to increasing non-performing assets. Together, they meant that the government was required to step up and deliver to revive the economy. While the budget speech gives the impression that the government is serious about reviving the rural economy, the numbers need to be read carefully to assess the government’s intent.

Since budget speeches are not just about presenting the accounts of the government but also about outlining government priorities, the budget for 2016-17 needs to be assessed on both these counts. In terms of intent and focus, this budget was expected to focus on the rural economy and the finance minister’s speech has rightly done so. The focus on the rural economy, particularly agriculture and rural development, deserve to be appreciated. Some of these were obvious in the run-up, with the Prime Minister announcing the revamped crop insurance scheme and the government owning up to the need for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

These also appeared to be the case in the finance minister’s speech, which talked about doubling farm income in the next five years. While this promise is certainly laudable, the blueprint to achieve this appears doubtful—at least going by the numbers in this budget.

While the budget of the ministry of agriculture has been enhanced from Rs.17,000 crore in the last budget to Rs.36,000 crore now, most of this increase has been in the Pradhan Mantri Fasal Bima Yojana and interest subsidy on short-term credit to farmers. Excluding these two programmes, the ministry’s budget has been increased only marginally. While the fertilizer subsidy has been cut by Rs.2,438 crore, the amount of expenditure budgeted on irrigation is only Rs.2,340 crore.

Similarly, the focus of the government on decentralized procurement and computerization of fair price shops will help a lot in streamlining the public distribution system. The promise to streamline the delivery of public services using a social security platform will also help in improving the efficiency of the system. At the same time, the delay in implementation of the National Food Security Act (NFSA) and the reduction in food subsidy by Rs.5,000 crore in this year’s budget do raise concerns on the government’s intention on the NFSA.

While most of these budgeted estimates in agriculture appear to be improvements over the last year, it should be noted that the last budget had also managed to cut spending on many agriculture-related schemes including the Rashtriya Krishi Vikas Yojana and many irrigation-related schemes. The least that was expected from the government was that it would restore the budgeted expenditure on some of these heads to levels existing before last year’s budget. While this has not happened in this budget, the commitment of the government to increase spending on agriculture will certainly come as a relief to millions of farmers in rural India in the long run.

But what is required at the time of rural distress is not just long-terms plans of rural rejuvenation and crop insurance but also policies to provide relief in the short run. The announcement for an increase in expenditure on MGNREGA and Pradhan Mantri Gram Sadak Yojana is welcome in this regard. Both these programmes have not only proved useful in building rural infrastructure, one of the nine pillars mentioned by the finance minister, but they have also been able to generate employment and income for the rural poor.

As against the actual expenditure of Rs.35,766 crore last year, this year Rs.38,500 crore has been allocated for MGNREGA. While this is an improvement over the last year, it is less than the total commitment of Rs.39,000 crore promised by the finance minister last year (Rs. 34,000 crore in the budget with an additional provision of Rs.5,000 crore). Nonetheless, the increase is a welcome step toward recognizing the potential of MGNREGA in reducing distress in rural economy as well as in infrastructure creation. Similar increases in other rural development schemes such as the Indira Awaas Yojana will certainly contribute toward creating demand in rural areas.

While concerns will remain on the ability of this budget to deliver on the promise to revive the rural economy, this budget has certainly shifted the focus of government policy to the crisis in the countryside. This budget may avert the crisis in rural areas and may stop it from worsening, but prudent government policy also requires that some of these measures are backed up with long-term measures to insulate the rural economy from such episodes. This requires re-energizing the rural economy as an engine of growth at a time when other parts of the economy are not doing well.

Himanshu is an associate professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.