india

Updated: Nov 20, 2019 05:39 IST

Think-tanks, financial sector bodies, experts within the finance ministry, and the ruling Bharatiya Janata party’s ideological parent, the Rashtriya Swayamsevak Sangh (RSS), all want the government to focus on the rural economy in the forthcoming Union budget, three people familiar with the matter said on condition of anonymity.

The thinking in many quarters is that a focus on the rural economy could help revive aggregate demand and address the ongoing economic slowdown, the people added. And the RSS, they said, considers it not just the best way to boost the economy, but also earn a political dividend.

The government has already started its consultations with stakeholders, internal and external, on the budget, which comes at a crucial time. The Indian economy grew at the slowest pace in 25 quarters, 5%, in the three months ended June. The State Bank of India has reduced its estimate for India’s growth to 5% in 2019-20 from the previous projection of 6.1% and Moody’s Investors Service from 5.8% to 5.6%.

According to one of the people cited above, a senior functionary of the RSS, the organisation raised the issue at a meeting with Union finance minister Nirmala Sitharaman last month.

“The Sangh is of the view that lopsided focus on urban issues in the last five years did not work. Addressing concerns in rural economy will mitigate the impact of a global slowdown on India,” this person added.

Earlier this year, the Sangh and its affiliates applauded Sitharaman’s budget announcement [on July 5] that “gaon, garib and kisan” (villages, poor and farmers) will be the focal point of policy making.

While presenting the budget, Sitharaman quoted Mahatma Gandhi, who said the soul of India lives in its villages. She also said the roll-out to foreign direct investment will only happen after discussion with stakeholders, which is also a demand made by affiliates such as the Bharatiya Mazdoor Sangh (BMS) and the Swadeshi Jagran Manch (SJM).

“Based on the feedback from the ground, affiliates of the Sangh have suggested that there should be incentives for the small and marginal farmers. And instead of quick sops such as loan waivers, there should be long-term policy intervention to make farmers self-reliant and farming profitable,” the functionary added.

Although India continues to remain among the fastest growing major economies, the slowing in the pace of growth has been a cause for concern. Experts and policymakers say the forthcoming budget provides the opportunity for the government to make necessary fiscal interventions to raise farm incomes, boost rural consumption and to create employment in rural areas, the persons quoted above said.

In a written response to a question raised in the Lok Sabha, Sitharaman on Monday acknowledged that although the economy had slowed, it is still projected to grow at the fastest pace among G-20 nations this year. She said the government has been taking several measures to address moderate levels of fixed investment rate in the economy, plateauing of the private consumption rate and a modest export performance, with a view to accelerating GDP growth.

The second person mentioned above said the government had acknowledged the urgent need to boost rural demand. The government is focusing on credit disbursal in rural areas through smaller non-banking finance companies (NBFCs) because of their greater access in villages, the official said.

Ranen Banerjee, leader of the public finance and economics practice at PwC India, said: “Any inducement to rural demand uptick by the government through a push for rural infra projects and less by way of cash transfers would help more than a cash transfer-based demand generation as it will have higher multiplier effect. Pushing rural water supply, rural housing and small works under MGNREGA {Mahatma Gandhi National Rural Employment Guarantee Act} would work better. This will create local jobs and higher rural consumption feeding into the positive overall economic cycle.”