Rural economy and its expectations from Budget 2018-19

In his budget speech on 1st February 2017 the finance minister stated that he proposes to present the budget under ten distinct themes and rural population was one of the said themes. Experts believe that budget 2018 will be no different in fact the FM is expected to focus more on rural India and its economy with renewed vigor. Consecutive years of drought and then demonetization have had its impact on the rural economy too, but recent surge in tractor sales may indicate that the worse may be behind us. Tractor manufacturers sold a whopping 363,071 unit in the April - September 2017 period, a 21% increase compared to the same period last year. Over the last couple of years policies such as farm loan waiver and subsidies have become a norm but these sops do not reach the small farmers, may be fiscally unviable and even counterproductive. Experts believe that the FM in his budget 2018 should focus on providing relief to small farmers with very small or negligible land holdings. This can be done by taking steps to ensure agri-GDP growth and rural wage growth.

Structural challenges facing the rural economy

Farmer distress, rural distress and organized protests by farmers in different parts of the country and its impact as displayed in Gujarat elections will definitely have the government worried. The Budget 2018 presents a unique opportunity for the government to address challenges faced by the rural economy. Also many parts of the country had been suffering from drought which further added to the problem. The government has earlier stated that they plan to double the farmer’s income in the next 5 years. Although the government has taken steps to address few issues that have plagued the rural economy but the benefits just don’t reach the small and marginal farmers who form the majority of rural households. For instance there has been growth in crop insurance but the growth hasn’t been satisfactory and a majority of small farmers still don’t possess crop insurance noted the Comptroller and Auditor General (CAG) in a 2017 report. The most basic structural challenges faced by the rural agricultural sector includes issues such as adequate minimum support price (MSP), access to markets, clear policy formation, fragmentation of land holdings, lack of sufficient risk-mitigation process for farmers and more. Although these issues are not really going to be addressed in the Budget 2018 as per se but budgetary allocations for institutional reforms covering the above issues may go a long way in addressing rural distress.

Rural economy other than agriculture

Rural economy is also undergoing a silent transformation. Today half of the country’s industrial production comes from the rural areas. Share of agriculture in the gross rural output has been steadily declining over the decades and now have even fallen below 50%. Rural services which form around a quarter of gross services output of the country and rural construction that constitutes to about half of all building activities in the country are also no lightweight sectors to neglect. Surprisingly even after this impressive growth in rural industrial production, the trend has not reflected in rural employment growth. Rural employment has remained flat or has shrunk thus increasing rural joblessness which is a major concern that the government will have to address in the Budget 2018. Experts believe that steps to increase productivity, further enhancing skill development, shift from unorganized to formal economy can help address these issues faced by rural industries.

Steps in the Budget 2018 that may be taken for rural economy

Government has prepared an action plan to double farm income for farmers in the next 5 years and under the plan has listed many reforms. Experts believe that the said reforms and recommendations should be given a boost through the Budget 2018-19. Restructuring the union agriculture ministry and setting up of a review mechanism at district, state and national levels, fixing the existing farmer-centric schemes to reach the last man, breaking the stranglehold of middlemen, recognizing tenant farmers by liberalized land leasing policy and encouraging decentralized procurement of crops by states are some of the reforms that have been proposed and can be looked in to in the Budget. Other than that the primary expectation of the rural economy from the FM and the Budget 2018 would be higher allocation of funds to stimulate rural economy, increased capital expenditure in agriculture sector, access to affordable housing under the government’s project of housing for all by 2022, steps to boost rural employment, access to affordable and ample power and better connectivity to rural India through enhanced road construction.   

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel