Will there be a special package for rural India in interim Budget?

Finance Minister Nirmala Sitharaman will present the interim Budget tomorrow, February 1. According to reports, the interim Budget could see the government increase the allocation per farmer under the Pradhan Mantri Kisan Samman Nidhi Yojana, or PM-KISAN scheme. While the government may be tempted to announce such measures for rural India ahead of the Lok Sabha elections later this year, it also has to ensure that its fiscal consolidation plan is not affected. Against this backdrop, while the third episode of Business Standard's interim Budget special series answered whether the government would give another boost to welfarism, the fourth episode looked into whether the interim Budget would include a special package for rural India. To find out, read the transcript of the Business Standard Morning Show's fourth and final interim Budget special.

The Interim Budget 2024-25, slated for announcement on February 1, will likely see the central government focus on issues close to rural India’s heart. The government may unveil targeted measures that would make up a special package aimed at the agricultural and non-agricultural rural sectors.

 

On the topic, Business Standard's A K Bhattacharya had this to say:

• Interim Budget will focus on rural India
• Urban India will also grow if rural India grows sustainably
• For example, FMCG sector does well when rural India's incomes rise
• Govt is conscious of this and it will reflect in the interim Budget 

With 34 per cent of its market in rural areas, India’s FMCG sector is a good indicator of rural economic health. At the Confederation of Indian Industry’s FMCG summit in December, managements of various fast-moving consumer goods companies had said that urban demand continued to grow, while rural demand remained under pressure because incomes were under stress in rural areas.  

Additionally the agriculture sector is projected to see a 1.8 per cent growth in FY24, marking a seven-year low. The reasons are poor Kharif harvest and weak initial sowing of Rabi crops. These findings are from the first advance estimates of national income released by the NSO in January.

The government is likely to be conscious of these factors ahead of the General Elections. For example, the government could reportedly increase the allocation per farmer under the Pradhan Mantri Kisan Samman Nidhi Yojana, or PM-KISAN scheme. The allocation could increase from Rs 6,000 annually to Rs 8,000.

Against this backdrop, Business Standard’s Sanjeeb Mukherjee highlighted the measures that the government could reportedly take for the benefit of rural India:

• Indications exist that govt will bring a special package for rural India
• Both agri and non-agri sectors may be addressed in interim Budget
• PM-KISAN instalments may be increased
• It’s possible that only women farmers under PM-KISAN will get enhanced instalments 
• Govt could reportedly increase MGNREGA allocation to about Rs 90,000 crore upfront 
• This could push in more money into rural economy

However, such measures have their attendant challenges. Let's start with the possibility of the government increasing the allocation per farmer under the PM-KISAN scheme.

As explained by Sanjeeb Mukherjee:

• Increasing PM-KISAN instalment will pose challenge to govt’s fiscal consolidation plan
• Increasing instalments could create a Rs 65,000 cr permanent drag on the Budget
• It may be electorally prudent, but it does not make economic sense
• Increasing PM-KISAN instalment only for women farmers makes more sense
• Women have enthusiastically voted for BJP in recent Rajasthan, Chhattisgarh, and Madhya Pradesh polls
• Govt has cultivated the women voters constituency over a period of time    

Now, let's address the option involving the Mahatma Gandhi National Rural Employment Guarantee Act, or MGNREGA.

Once again, Sanjeeb Mukherjee explained:

• Indications exist that govt does not want MGNREGA to expand
• Recent govt actions show it wants MGNREGA to be a limited and focused scheme
• Govt has taken steps to weed out ineligible beneficiaries   
• Thus, govt unlikely to increase MGNREGA’s budgetary allocation upfront  

Clearly, Mukherjee is doubtful about the government increasing MGNREGA allocation.  

Given the challenges involved, the government will have to carefully select the measures it could announce for the rural sector in the interim Budget.

With that in mind, Mukherjee outlined some possibilities:

• Real rural wages have not grown significantly in past five years
• Govt can pump in more money where rural labour gets absorbed more efficiently
• Govt can allocate additional funds to the drinking water scheme
• Govt can top up the amount for the rural housing scheme
• Schemes that create rural infra and absorb casual rural labour can be attempted
• Govt may bank on such schemes as it is their focus area  

Even if the government does ultimately bring in a special package for rural India in the upcoming interim Budget, A K Bhattacharya stressed that it would still ensure that electoral compulsions do not compromise its fiscal consolidation plan.