3 min read.Updated: 02 Feb 2022, 12:27 AM ISTHimanshu
Rural economy has to deal with declining incomes and rising cost of essentials
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The general consensus on the state of the Indian economy can be summarized as follows: The economy has been in a deep crisis even before the pandemic-led disruptions. Second, the crisis is not a result of supply constraints but is a result of demand deficiency, particularly in the rural economy.
Recent evidence suggests that the impact of the slowdown and pandemic has been borne disproportionately by those at the bottom. And finally, monetary policy has limited success in dealing with a crisis of this nature with fiscal policy expected to play the dominant role. Any evaluation of the budget 2022 has to be in this context.
Given this context, the task before the finance minister was to increase consumption demand in the economy and also protect those affected by the slowdown and the pandemic. The surest way of doing this was to raise incomes of those engaged in agriculture, directly as well as indirectly. While the reality as reported by the situation assessment survey of the NSO is that farmers income from crop cultivation actually declined in real terms in 2019 compared with 2013, the situation seems to have worsened in the last one year with rising energy and fertiliser prices.
The ongoing elections to crucial state legislatures and farmers’ protest had forced the government to roll back the rise in fertiliser prices in May 2021 and absorb the rise in fertiliser prices by increasing subsidy. However, this budget has drastically reduced the subsidy on fertilisers from ₹1.4 trillion last year to 1.05 trillion for 2022-23. Incidentally, this is lower than the actual subsidy of ₹1.28 trillion in 2020-21 when global prices were much lower than current prices. The other major cost in agriculture is energy cost, which has also seen a sharp rise last year for both diesel and electricity.
The temporary freeze on electricity charges and diesel prices will likely be removed once elections to crucial states are over, leaving farmers to pay higher prices for energy as well. With both paid-out costs rising faster than output prices, which remain subdued due to low demand in domestic markets, there is every likelihood of farmer incomes declining even more than the levels of 2019. Despite rising inflation, the budget for other support schemes, such as crop insurance, interest subvention and cash transfer scheme, remained more or less unchanged. Clearly, this is a sure recipe for reducing real farm incomes at a time when the rural economy is already under severe distress.
As if the shocks in agriculture were not enough, this budget has also dealt a severe blow to the non-agricultural sector of the rural economy. at a time when agriculture is no longer absorbing workers and the non-agricultural sector has seen disruptions, the rural non-farm economy acted as a refuge for a majority of wage workers. Majority of these found employment in the National Rural Employment Guarantee Scheme (NREGS) which acted as saviour despite wages being lower than market wages. This was also acknowledged by the economic survey of this year. Surprisingly, the budget of NREGS has been reduced from ₹98,000 crores last year to ₹73,000 crores for this year. Incidentally, this is also lower than the actual expenditure of ₹1.11 trillion for 2020-21. This has happened despite wages rising in the last two years. The fate of other schemes of the ministry of rural development is no better with most witnessing either the same allocation as last year or a marginal decline. The net result is a 12% decline in the budget of rural development at a time when distress in the rural economy is at its highest. With likely withdrawal of additional allocation of food as part of the National Food Security Act from next financial year and rising retail inflation, the rural economy has to deal with the double whammy of declining incomes and rising cost of essentials.
Given the level of distress in the rural economy, this budget was expected to provide for protection of incomes, employment and basic services to the majority in rural areas. At the least it was expected to strengthen the existing mechanism and not weaken it. But this budget has not only ended up weakening these, it has also proposed a recipe for deepening of the distress in the rural economy. In the process, it has also given up any hope of reviving the economy, which is sliding down in crisis every passing year.