Home / Opinion / Online Views /  Budget fails to factor in the challenges to revive rural economy

New Delhi: One of the best things about budget 2015 was the honest assessment by finance minister Arun Jaitley of the challenges facing the economy. Jaitley started his speech by mentioning five challenges, all of which urgently merit the government’s attention and also have a bearing on the medium- to long-term programme of economic revival. The five challenges he mentioned were stress in agricultural incomes; investment in infrastructure; decline in manufacturing; a squeeze in central expenditure because of devolution of additional funds to the states recommended by the finance commission; and the need to maintain fiscal discipline. Of course, the first two also imply that the rosy picture of economic revival suggested by the economic survey or the Central Statistical Office is not fully shared by the finance minister. A natural corollary of this would have been for Jaitley to take concrete steps to boost agriculture, manufacturing and investment in his budget proposals.

It is here that the budget fails to live up to the expectations. Perhaps the repercussions of the finance commission’s recommendations and the need to maintain fiscal discipline outweighed the challenges of reviving the rural economy and manufacturing. One big consequence of the finance commission’s award, which was rightly pointed out by the dissenting note in its report, is the severe cutback in the agricultural budget, most of which not only benefited the poorer states but also resulted in a more than 3.5% rate of growth in agriculture between 2004-05 and 2013-14. For example, the budget for Rashtriya Krishi Vikas Yojana (RKVY) and National Food Security Mission (NFSM) has been kept constant with a change in the sharing pattern. The same is true for irrigation programmes such as the Accelerated Irrigation Benefit Scheme (AIBS) and Integrated Watershed Management Programme (IWMP). The net result of all these is that there is no increase in the overall spending on agriculture despite the acknowledgment that farmers’ incomes are under stress and the rural economy as a whole is in need of some kind of fiscal stimulus.

But a lot of these also assume that the state governments will provide the matching sum to compensate for the hit to central spending on these programmes. The total decline in spending on IWMP, RKVY, NFSM and AIBS is 7,563 crore. Along with this, 6,287 crore of the erstwhile Backward Regions Grant Fund (BRGF) has been cut. The much-touted soil health card scheme has seen its budget increase from 156 crore last year to just 200 crore in this budget. The overall budget of agriculture has declined by more than 5,000 crore compared with last year.

All in all, the promise of cooperative federalism also comes with the responsibility of the state governments to not only match the cuts in the central budget but also spend on areas that require budgetary support. But even for programmes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which is centrally run, the promise of raising the budget by 5,000 crore is contingent upon higher tax realizations.

Considering that MGNREGA has already suffered due to neglect in the previous budgets, this should have been a priority not only for reviving the rural economy but also for raising rural wages and creating assets in rural areas. The same appears to be the case as far as reviving public investment and encouraging manufacturing is concerned. Considering that the economic survey highlighted the issue of negative protectionism and the plight of small and medium enterprises, one would have expected a boost in infrastructure spending on providing infrastructure to small and medium enterprises as well as measures to end negative protection. However, there does not appear to be a clear roadmap for public investment. The only announcement is that of the Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of 20,000 crore.

While a realistic evaluation of the budget must factor in the constraints imposed by the finance commission, this budget has failed to factor in the challenges of reviving the rural economy that the finance minister himself mentioned. The overbearing concern of maintaining fiscal discipline even at the cost of reviving the rural economy and boosting the manufacturing sector is not only short-sighted, it may also lead to these challenges turning into a crisis.

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

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