Rural India's Budget expectations

There is a need to reduce stress in agriculture and increase demand to ensure sustainable growth

The performance of agriculture and the rural economy is important as around 70 per cent of the population and workforce reside in rural areas. Increasing their purchasing power is crucial for creating demand in the entire economy. In this context, let’s examine the present state of agriculture, rural economy, and expectations from the interim Budget for 2024-25.

Indian agriculture has done well, with an average annual growth rate of 4.4 per cent in the past six years (2017-18 to 2022-23) including Covid-19 years. However, the first advance estimates of gross domestic product (GDP) for FY24 indicate a dismal seven-year low growth of just 1.8 per cent. This low growth in agriculture was largely due to the poor monsoon (El Nino effect) in 2023. Production of major kharif crops and even allied activities like livestock, fishing, and aquaculture could witness a decline in FY24. Rabi sowing is also muted this year. Although overall inflation in December 2023 was 5.7 per cent, the consumer food price index recorded an inflation rate of 10 per cent. Global uncertainty on food prices and supply chains due to wars in few countries may continue, although the Food and Agriculture Organization food price index declined from 143.7 in 2022 to 124.0 in 2023.

A recent study by the Reserve Bank of India (RBI) explores the dynamics of the agriculture supply chain by estimating the farmers’ share in consumer prices through a pan-India survey of farmers, traders and retailers. The survey finds that the average share of farmers in output value varies between 33 and 70 per cent across various crops. As one expects, perishables have a much lower share. The survey findings suggest that further development of agricultural markets, warehouses, pre-processing facilities, ripening units and cold storage is critical for efficient supply chain management.

India holds significant potential for increasing agricultural exports. Special efforts are required to diversify the agri-export basket and explore new destinations, as well as to increase high-value added agricultural exports. While there may be a need to impose export bans and increase tariffs on occasion, it’s crucial to consider that such measures could potentially reduce farmers’ incomes.

Indian farmers face many problems. The economic survey 2022-23 called for a reorientation in agriculture to deal with challenges such as climate change, rising input costs, fragmented land holdings, sub-optimal farm mechanisation, low productivity, and disguised unemployment. At present, subsidies exceed public investments in agriculture. India spends only 0.4 per cent of agri gross value-added on research and development, while other countries spend 1 to 2 per cent of agriculture GDP. There is a need to tackle the impact of climate change. One study shows that climate shocks such as droughts, floods, heat waves and cold waves have slowed down India’s agriculture productivity growth by 25 per cent, and the slowdown has been more pronounced in the poorer and agrarian states.

As for rural demand, the RBI analysis shows a mixed performance. Automobile sales, although moderating sequentially, registered an expansion of 14.1 per cent year-on-year (y-o-y) in December, while two- and three-wheeler sales recorded double-digit y-o-y growth. On the other hand, tractor sales recorded a two-year low in December, and contracted by 19.8 per cent (y-o-y). Other data shows that the sales of fast-moving consumer goods in value terms faltered and the rural demand continued to lag in the October-December quarter. Additionally, rural real wage growth has been either low or negative in the last one decade. The demand for jobs under MGNREGA is still high this year, though showing a decline compared to the previous year. Whether one calls it a K-shaped or V-shaped recovery, the weak rural demand is a concern for fast-moving consumer goods, other durables and discretionary products, although we see few green shoots now. Around 51 per cent of micro, small and medium enterprises are in rural areas and they have to be strengthened.

What are the expectations in the interim Budget? One expects a boost to rural growth due to stress in agriculture and the rural economy. In an election year, Budget allocations are expected to be pro-farmer and pro-poor. The Finance Minister recently mentioned that youth, women, farmers and the poor would be the focus of government policies. These four groups are higher in rural areas and this could be an indication of the thrust of the interim Budget.

The government may stick to the fiscal deficit target of 5.9 per cent for FY24, with the aim of reducing it to 4.5 per cent by FY26. The increase in capital expenditure is expected to continue in future budgets, which would also benefit rural areas. The last Budget made some announcements such as digital public infrastructure for agriculture, an agricultural accelerated fund to encourage agri-startups, and the establishment of a global hub for millets (Shree Anna). These announcements would require increased allocations. Notably, higher funds were allocated for the Jal Jeevan Mission, farmer producer organisations (FPOs), and food processing, and this positive trend should be continued. The last Budget also saw an increase in agricultural credit to Rs 20 trillion, with focus on animal husbandry, dairy and fisheries. Recent estimates show disbursal of farm loans exceeded 90 per cent of the Budget estimate in the first nine months of the current fiscal. The interim Budget may raise agricultural credit by 10 to 15 per cent.

The last Budget announced schemes aimed at promoting a circular economy and facilitating 10 million farmers to adopt natural farming. This focus may continue in the next Budget. Additionally, the Budget should also emphasise adaptation and mitigation measures to reduce carbon emissions. Similarly, the PM Krishi Sinchayee Yojana and the crop insurance scheme (PM Fasal Bima Yojana) need to be further strengthened.

One expects increased allocations towards farmers and rural development programmes to stimulate demand in rural areas. With the extension of the PM-Garib Kalyan Anna Yojana (PMGKAY) for the next five years, there could be a rise in the food subsidy bill, while the fertiliser subsidy may not see a significant increase. The Budget is likely to allocate more funds for the PM-Kisan Samman Nidhi (PM-Kisan) scheme, MGNREGA, and affordable housing (PM-Awas Yojana). An increase in rural wages is also crucial for creating demand and fostering private investment in rural areas. Malnutrition among children in rural areas is high and needs attention.

To conclude, there is a need to reduce stress in agriculture and increase rural demand to ensure the sustainability of growth and the creation of productive employment. This will benefit farmers, the poor, youth, and women. In an election year, the Budget has to strike a balance between pro-poor redistributive policies while ensuring fiscal deficit targets. Raising revenue, reducing tax concessions, and curtailing expenditures on unproductive activities are required to achieve this objective.

The writer is distinguished professor, ICFAI, Hyderabad, and former director, IGIDR, Mumbai