All eyes In India have been on the Narendra Modi government’s recent budget, and its attempt to perform a balancing act in addressing the concerns of different sections of society, while also giving a stimulus to growth.
There was a clear thrust on agriculture. Some of the important steps include the setting up of the Long Term Irrigation Fund for implementing 89 major/medium irrigation projects. Allocations for micro-irrigation have also been increased.
Other important initiatives were the introduction of a crop insurance scheme, a common e-platform (the United Agricultural Marketing e-Platform) for marketing as well as the introduction of Foreign Direct Investment (FDI) in food processing with the aim of providing farmers a better price for their fruit and vegetable produce. One of the targets set was the doubling of agricultural income in the next five years.
In the rural sector, a target of 100 percent village electricification by May 1, 2018 was set, and there was an emphasis on road connectivity.
One of the major “reform measures” has been the decision to introduce direct benefit transfer of fertilizer subsidy to farmers. Even the allocation for the Mahatma Gandhi National Rural Employment Guarantee Act, a scheme which was earlier criticized by the BJP, was increased substantially.
The focus on agriculture and rural areas was expected for a number of reasons. Rural distress has had a significant impact on India’s rural economy and the overall economic climate.
While India has emerged as the fastest growing economy, two droughts and a slowdown in the agrarian sector, along with the global recession, have obstructed the take-off that was anticipated in May 2014 when Modi won.
The opposition had accused the current government of ignoring rural India. The defeat in the Bihar elections in November 2015 conveyed a feeling that the opposition’s charge had struck a chord with sections of the electorate, and the BJP clearly wanted to do a mid-course correction with an eye on the upcoming state elections (West Bengal, Kerala, Assam and Tamil Nadu, 2016) and well before the UP assembly elections in 2017.
In 2004 when the BJP lost the election, many argued that it was due to the “India shining campaign,” which was out of sync with the realities of the country, especially in rural areas. The BJP does not want to make the same mistake again.
In other sections of the budget, the sticking to a fiscal deficit target of 3.9 percent, has come in for praise though many analysts also feel this is ambitious, considering the expenditures likely to be incurred on the initiatives and schemes announced.
The middle class, a key constituency of the BJP, was largely disappointed. Some had expected that the tax slab would be increased, but this was not the case. Instead, another levy (0.5 percent) on all taxable services was imposed for financing projects in agriculture.
The budget has a strong political overtone to it, but the strong emphasis on rural sector was urgently needed and is likely to give a fillip not just to agriculture, but also to rural connectivity and infrastructural growth, which will attract private sector investment.
The decision to introduce FDI in food processing could be a game changer for the rural sector. What this budget also proves is that there is a strong continuity in Indian economic policy, and no government can afford to ignore rural India. While the BJP will not have much of an opportunity for big bang economic reforms, it may be able to deftly push ahead some crucial ones.
The opposition on the other hand needs to reboot its strategy, since dubbing the government as “anti-rich” may no longer be an effective strategy.