Why Budget 2018 is too late, too little for the rural economy
Since this was the last full budget of the Narendra Modi-led government before the general elections next year, its contours were more or less known to everybody. The budget in that sense did not surprise. Given the tight fiscal situation, it was expected that there will not be any increase in spending and that, in fact, there may be expenditure cuts. But since this is a budget aimed at the elections next year, the rhetoric will be pro-poor and pro-farmer. While politics did dominate this budget with lots of grandstanding and concern for the poor and farmers, the situation also demanded some concrete steps to ease the stress in the rural economy, irrespective of political compulsions. However, a preliminary reading of the budget suggests a wide gap between the intent and the actual allocation for many of the budget heads that matter.
A budget is not the occasion to make policy announcements, and therefore, the bold announcement of the finance minister to provide one-and-a-half times the cost as minimum support price in the next crop season is not something to cheer about. This is a repetition of what Modi promised in 2013 and, without any details, this may just be a political gimmick. More so when the finance minister in his press conference also says that it will not be inflationary. But what matters in a budget is the allocation of expenditure on various heads. Unfortunately, it is here that the budget fails to enthuse those looking for some concrete measures in the agricultural sector. The only budget head in agriculture, which has seen an increase is the allocation for the crop insurance scheme, from Rs11,000 crore in 2016-17 to Rs13,000 crore in 2018-19. For the rest, there is either stagnation in allocation or a decline in expenditure. But even for these allocations, the Budget documents also provide reason for circumspection, given that almost all heads have seen lower expenditure than what was budgeted last year. For example, the budgetary allocation for this year is lower than the budgeted expenditure on all the three big programmes of Rashtriya Krishi Vikas Yojna, National Food Security Mission and National Mission on Horticulture, although it is marginally higher than the actual expenditure.
Why the government did not spend what was approved by Parliament in Budget 2017-18 in a year when the farm sector was in deep crisis is a mystery. But this government has consistently seen spending on agriculture to be less than budgeted. A net result of this is that this government will be a government with negative investment in agriculture in its entire tenure. The real decline in investment in agriculture was 4.7% in the first two years and the trend is likely to worsen by the end of this government’s term.
What the government has also misread is the nature of the rural distress which is no longer restricted to agriculture. The crisis is a general lack of demand and the best way to boost it was to increase spending on other non-agricultural heads which could have boosted demand. However, the story on most of these is either of stagnation or a decline in expenditure. The expenditure on employment guarantee remains the same as the actual expenditure last year, as is the case with the rural roads programme, the budget for which remains the same as budget estimates last year. But the most ambitious programme of rural housing, which together with the rural roads and employment guarantee programmes could have boosted the construction sector, has seen a cut of Rs2,000 crore compared to actual expenditure last year.
Most of these programmes could have boosted rural demand and taken the pressure away from agriculture.
The crisis in rural areas is no longer a matter of debate. However, the response of the government, at least as evident from the budget, fails to meet expectations. While it may not revive rural demand and mitigate rural distress, whether it fetches votes will only be known next year.
Himanshu is an associate professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.