union-budget

Updated: Jan 22, 2020 05:42 IST

Union Budget 2020-21 is expected to focus on the transformation of rural India with a nearly 15% jump in fund allocation to boost the village economy and raise incomes, particularly of small and marginal farmers, three people aware of the development said on Tuesday.

“Transformation of the rural economy is a must for two reasons; to reverse the current economic slowdown, which is hit mainly due to weak demand, and to make India a $5 trillion economy by 2025. Both the objectives require special focus on agriculture and rural economy, hence greater fund allocation,” one of the people cited above said, requesting anonymity.

India’s gross domestic product (GDP) grew 4.5% in the second quarter of the current financial year, the lowest since March 2013. According to the government’s first advanced estimates, India’s GDP is expected to grow 5% in 2019-20.

It is expected that rural India will see an additional fund allocation of about Rs 40,000 crore in 2020-21 compared to the total budget estimates for 2019-20, the first person said. The budget for the current financial year allocated Rs 2,48,132.40 crore to the two key arms responsible for the rural economy -- the Department of Agriculture, Cooperation and Farmers’ Welfare (Rs 1,30,485.21 crore), and the Department of Rural Development (Rs 1,17,647.19 crore).

According to the budget estimate (BE) for 2019-20, total fund allocation to the Department of Rural Development was raised by 4.66% compared to the BE last financial year. For the Department of Agriculture, Cooperation and Farmers’ Welfare, the increase in BE 2019-20 was over 179% because of Rs 75,000 crore allocated under the PM-Kisan scheme. The BE for the department in 2018-19 was Rs 46,700 crore. After subtracting the allocated fund for the new scheme PM-Kisan that was introduced in 2019-20, the increase was 19%.

The second person mentioned above said budgetary allocations for rural transformation would not be limited to the two key administrative ministries. “Significant funds will be allocated to rural regions through other ministries also. The budget will emphasise on greater emphasis on connecting villages to digital India and providing them amenities such as electricity, cooking gas, drinking water and sanitation,” the person said, requesting anonymity.

Providing details of the measures for the agricultural sector, a third person said the focus of increased allocation would also be on promoting exports, higher subsidised farm credit and incentives for mechanisation to double farmers’ income. The government will put in place a nationwide plan to form agri-export clusters for export of foodgrains, pulses, oilseeds, fruits and vegetables, the person said.

In 2016, Prime Minister Narendra Modi declared his government would double farmers’ income in six years, a politically significant goal in a country where nearly half the population depends on a farm-based livelihood. Small-time farmers, who make up 86% of the total, are the most deprived generally. They mostly consume – not sell – what they grow since they have lower surpluses.

The budget will contain measures to strengthen the national agriculture export policy in step with the government’s target of doubling farmers’ income. The aim is to raise the value of agricultural exports from $30 billion currently to nearly $60 billion by 2022, the person said.

In the last budget, the government increased the budget allocation for the farm ministry to Rs 1.39 lakh crore for the current financial year. Of this, Rs 75,000 crore was for the flagship cash transfer scheme PM-KISAN, according to the budget document. “Income transfer is a step in the right direction, but it has to be sufficient and continuous. They are giving Rs 6,000. This may not be sufficient,” said N Chandrasekhara Rao, an agricultural economist with Delhi University’s Institute of Economic Growth.

This insufficiency argument is borne out by the fact that although farmers get Rs 6,000 a year, the NDA government’s Volume 2 of “Report of the Committee on Doubling Farmers’ Income” states that the “average monthly consumption expenditure of a farming household” is Rs 6,223. Input costs too have risen by over a third in the last five years. The budget will contain measures for incentives to small farmers to “collectivise” or form groups to achieve scale in the export market, especially in view of recent farm trade deals.

In the past year, India has struck deals for agricultural exports with eight nations – the US, Iran, Taiwan, Canada, Chile, South Korea, Equador, and Malaysia — and is scouting for more markets as it prepares for a more liberalised trade policy in farm goods. The country has also filed market access requests for 35 agricultural products with over a dozen countries, an official said. Economists, bankers and sector experts have also advised finance minister Nirmala Sitharaman to take measures to boost demand to accelerate the economy in a series of pre-budget meetings held recently, the first two persons quoted above said.

Speaking to CNBC in Davos on Tuesday, Gita Gopinath, chief economist of the International Monetary Fund, suggested Sitharaman focus on reviving credit growth and consumer spending in rural areas in the budget to boost the economy.