Union Budget 2018 to boost rural demand
When finance minister Arun Jaitley rose to present the Union Budget 2018 in Parliament, he started his speech with the spotlight on the rural economy and agriculture. Jaitley said the prime minister had given a clarion call to double farmer incomes by 2022 when India celebrates its 75th year of Independence. “Our emphasis is on generating higher incomes for farmers,” he said.
To that end, the government has declared minimum support price (MSP) for the majority of rabi crops at least at one-and-a-half times the cost involved. “Now, we have decided to implement this resolution as a principle for the rest of crops…” said the finance minister.
Clearly, the focus, spelled out upfront in the speech, was on strengthening the rural economy, boosting consumption and revving up growth. According to Rajat Wahi, partner (management consulting) at consulting firm Deloitte India, overall, the budget has reinforced rural consumption which has been soft for the last two years owing to price pressures. “But this budget is driving rural consumption which will benefit all sectors like personal care, auto, two-wheelers etc,” said Wahi.
To further boost the agrarian economy, the finance minister announced the creation of a Rs2,000 crore agriculture market infrastructure fund and strengthening of the electronic national agriculture market (eNAM).
“470 APMCs have been connected to e-NAM network and rest will be connected by March, 2018,” he said. APMC is short for agricultural produce marketing committee.
He added that since more than 86% of the farmers are small and marginal, they are not always in a position to directly transact at APMCs and other wholesale markets. “We will develop and upgrade existing 22,000 rural haats into Gramin Agricultural Markets (GrAMs). In these GrAMs, physical infrastructure will be strengthened using MGNREGA and other government schemes. These GrAMs, electronically linked to e-NAM and exempted from regulations of APMCs, will provide farmers facility to make direct sale to consumers and bulk purchasers.” MGNREGA refers to Mahatma Gandhi National Rural Employment Guarantee Act.
He also spoke of cluster-based model of horticulture to be developed to assist groups of farmers from production to marketing, other than announcing the setting up of a Rs10,000 crore fisheries and animal husbandry development fund under the National Bank for Agriculture and Rural Development (NABARD). This is bound to help the small farmer and help grow their income.
According to Dabur India Ltd’s chief executive officer Sunil Duggal, “Bharat, or Rural India, has been the key focus of finance minister Arun Jaitley’s Union budget for 2018-19. It presses all the right buttons and ticks all the right boxes when it comes to fuelling the rural and agrarian economy with a slew of measures including higher MSPs for kharif crops, upfront agriculture focus, institutional support for price discovery and upgradation of rural haats to give farmers better access to formal mandis.”
He added that these measures, coupled with the mega health insurance programme for the poor and massive spending on rural infrastructure, will go a long way in strengthening the rural economy and boosting consumption in the hinterland.
Clearly, among the most important initiative in the budget is the health insurance scheme which is set to benefit 100 million households with a coverage of Rs5 lakh per annum. Financial stress of unforeseen medical expenses earlier did not allow the poor to spend productively. “However meagre their income, they can now spend on what I call productive consumption,” said Arvind Singhal, chairman at management consultancy Technopak Advisors. “Medical expenses are unproductive expenditure,” he added. To be sure, healthcare coverage is absolutely essential for any society, especially a poor one like ours.
Health insurance cover does not boost consumption directly, but if 500 million people get more money in their hands, they become potential consumers. “The fact is unless you increase the base of consumers, consumption doesn’t grow. Relatively speaking, this budget is more inclined to revive rural economy than boost urban consumption,” said Singhal.
There is further productive investment in infrastructure creation, especially roads, railways and airports. “Since roads are built in underdeveloped areas it leads to a virtuous cycle of economic activity and boosts incomes,” he added.
Clearly the populist, pre-election budget has come to the rescue of the agrarian economy.
Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.