Opinion
Himanshu: Will the budget’s proposals help revive India’s rural economy?
Summary
- It offers a tax subsidy to the country’s well-off but does little for the farm sector that needed investment to overcome a long-running crisis. This calls for a priority rethink.
That the Indian economy is going through a difficult phase is no longer a matter of speculation. The Economic Survey not only made that clear, but went further by offering evidence of a decline in earnings of the self-employed in the last six years. For regular and casual workers, wages have been declining for almost a decade, leaving little doubt whether India’s slowdown is cyclical or structural.
This isn’t the first such episode for this government; its first term saw sharper declines in India’s GDP growth rate between 2016-17 and 2019-20, even before the pandemic hit.
Back then, the distress was driven by rural pain. Two years of back-to-back drought followed by demonetization and the GST rollout hurt an already-fragile rural economy. The pandemic made it worse. The current slowdown also has roots in rural distress, which has extended for almost a decade now. This was bound to spill over to the urban economy and hurt overall demand.
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With growing uncertainty under US President Donald Trump’s policies and weaker demand in most advanced countries, exports are unlikely to drive a growth revival. That leaves domestic demand to do the job, and from rural areas in particular. The Economic Survey flagged these challenges. Still, neither did the budget offer anything new to boost agricultural incomes or worker productivity, nor did it allocate enough to revive the non-farm economy.
The finance minister’s speech did list agriculture as a top priority. But the budget offers no concrete plans. Most of the schemes either got no actual allocation or were a repeat of existing ones. The formation of a Makhana board in Bihar, for example; there already exists a National Research Centre for Makhana in Bihar’s Darbhanga—it has no regular director, though. In the last five years, the Centre has spent only ₹3.4 crore.
The Centre’s plan to increase incomes and productivity in 100 backward districts is also unconvincing, given that the overall allocation for agriculture has been lowered to ₹1.27 trillion from a revised ₹1.31 trillion last year. The crop insurance scheme got a cut of ₹3,600 crore. Even for PM-Kisan, the cash-transfer amount has remained at ₹6,000 per farmer since 2019.
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In 2016, the government promised to double farmer incomes in five years and a panel had recommended increased investment in agriculture. In reality, public investment in farming in constant prices in 2021-22 was lower than in 2016-17. Farmer incomes have also declined.
The much-touted pulses scheme is also not new. Such a scheme exists for oilseeds. While farmers responded to the scheme’s call to raise production, they have been forced to sell moong, soyabean, groundnut and tur at less than the mandated prices due to inadequate support from the government. The additional budget allocation is a mere ₹500 crore, which is not even enough to keep pace with inflation. It is not surprising then that farmers have been on protest since 2016, with the last hunger strike ended barely weeks ago.
The non-farm sector fares no better. The budget’s allocation for the rural employment guarantee scheme, which has served as a lifeline for the rural poor, has seen a decline compared to the actual expenditure in 2022-23, even as wages have increased only marginally, notwithstanding the fact that even the Confederation of Indian Industry (CII) had recommended raising wages to boost rural incomes. For other crucial rural development programmes too, allocations only match last year’s, which amounts to a decline in real terms.
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The broader issue, however, is of the government’s political priorities. While rural areas in general have been facing a prolonged and severe crisis, the budget has passed on benefits to the well-off among the middle class.
The income transfer to them through its tax subsidy is now much larger than cash transfers to farmers. They are numerically almost 10 times the size of the middle class, but receive less than a tenth of the budget’s transfers. The prevailing need was to increase fiscal spending in rural areas and on programmes to increase productivity as well as agricultural incomes. So, reduced spending coupled with a tax subsidy for the better-off is neither good economics nor good politics.
This budget was about making tough choices; between giving a ₹1 lakh subsidy to the well-off and doubling PM-Kisan transfers, between investing in agriculture and rural areas versus favouring the vocal middle class. The government has made its choice clear. Whether this will revive demand and thus the economy remains to be seen.
The author is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.
