Budget 2018: Relieving agrarian stress requires focusing on industry

Preparation for the Union Budget for the fiscal year 2018-19 is in full swing, and signs of the government’s main political concerns are clearly evident. In particular, Finance Minister Arun Jaitley has made it clear that the agricultural sector, which employs a disproportionate number of Indians, is likely to receive priority. Mr Jaitley asserted last week that India was one of the fastest-growing economies in the world and growth was benefiting people in different sectors, but then added that the maximum population was dependent on the agriculture sector and unless the gains were clear and evident, growth was not justifiable and equitable.

These words dress up for public consumption the government’s political imperatives. A surprisingly narrow victory in the Gujarat Assembly elections suggests that rural distress has begun to affect the Bharatiya Janata Party’s political fortunes. The coming year, 2018, is chock-full of important state Assembly elections and the 2019 general elections are not far off. It is not surprising that the farm sector is being given importance. And, indeed, Mr Jaitley is right that India’s development paradigm must properly address the hundreds of millions who still depend on farming for their livelihoods. 

However, it is vitally important that the right moves are made to ensure that rural India benefits from economic growth. Mr Jaitley highlighted the problem of low farm prices hurting growers. Prime Minister Narendra Modi himself has promised in the past that farmer incomes will be doubled. It is important that such an increase in farm incomes comes as a result of increasing productivity and not through direct government support. The latter has been seen to be counter-productive in the past, frequently creating inflation that causes its own economic problem and political backlash. Nor should loan waivers or other forms of subsidy increases or direct transfers from the government or quasi-government entities like public sector banks be the primary form of this new focus on agriculture growth. The fiscal and growth arithmetic is too tight for such adventurism; the previous United Progressive Alliance’s vast expansion of the fiscal deficit in 2008-09, immediately prior to its re-election, blighted India’s economy and its own political fortunes. 

The government, in its Budget-making exercise and in other policymaking over the coming year, should focus squarely on the medium- and long-term priorities for the agricultural sector. The only sustainable solution to the problem of agricultural distress — not to mention the lack of jobs for young people in rural and semi-urban India, and consequent anaemic wage growth — is to accelerate the transition from an economy that is dependent on agriculture to one that is more urban and industrial. In other words, an industry-focused Budget is one that prioritises agriculture. The urban sector must be allowed to grow sufficiently to create the jobs that will absorb surplus farm labour. The need is to provide options to those on India’s farms and remunerative employment outside the farm sector. The consequent reduction in pressure on the rural sector will lead to a rise in productivity and, thus, in incomes and rural prosperity. This is the only sustainable, long-term solution to rural distress, and it is to be hoped that the Budget will move in that direction.