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LATEST NEWS UPDATES | Can Budget 2018 address slowdown in rural economy? -Tadit Kundu

Can Budget 2018 address slowdown in rural economy? -Tadit Kundu

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published Published on Jan 18, 2018   modified Modified on Jan 18, 2018
-Livemint.com

Union Budget 2018 may be able to offer sops for big farmers but it would not be able to deal with the structural challenges facing India’s rural economy

The results of the Gujarat elections, in which the opposition Congress outperformed the ruling Bharatiya Janata Party (BJP) in rural constituencies, and the growing number of farmer agitations in the country have focused attention on rural India ahead of this year’s budget. But addressing the rural challenge successfully will depend on an accurate diagnosis.

While it is undoubtedly true that organized protests by farmers and agrarian riots have been rising in the Indian countryside over the past couple of years, the trajectory of overall rural distress has not exactly been the same.

In fact, the Mint index of rural distress has been declining over the past couple of years after it rose to its peak in 2015, when back-to-back droughts had hurt the rural economy. The Mint index of rural distress is a composite index based on normalized values of three high-frequency indicators—rural wage growth, agri-GDP growth, and tractor sales.

The rural distress index is on a downward trajectory. Yet, the rural distress index is still higher than what it was when the Narendra Modi-led BJP government stormed to power in May 2014. This suggests that while the rural economy may not be in as dire straits as in the summer of 2015, the rural economic crisis is indeed real and has lasted quite long.

The roots of the rural crisis lie in structural problems—fragmentation of land holdings and the lack of land-leasing laws, market imperfections and lack of access to markets, lack of adequate risk-mitigation mechanisms in farming—all of which require structural solutions. The budget is unlikely to be able to fix these problems since they require institutional reforms beyond budgetary allocations.

While the budget can make provisions for farm waivers or higher farm subsidies, such policies may not be fiscally sustainable, and may even be counter-productive.

Besides, such policies may not directly impact the poorest and most vulnerable rural households. Such households with very small or negligible land holdings, whose incomes barely cover their consumption expenditure, tend to be less dependent on cultivation as a source of income compared to big farmers, as a 2016 Indira Gandhi Institute of Development Research (IGIDR) working paper by Sanjoy Chakravorty, S. Chandrasekhar, and Karthikeya Naraparaju pointed out. Small and marginal farmers who form the bulk of rural Indian households depend more on wage incomes and animal farming than on cultivation for their livelihoods, their analysis of National Sample Survey Office data shows.

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Livemint.com, 17 January, 2018, http://www.livemint.com/Politics/QqrmGbQPFO09quhUpZhW4L/Can-Budget-2018-address-slowdown-in-rural-economy.html


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