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The Big Picture – Thrust on Agriculture and Rural Economy: Is it a game changer?

The Big Picture – Thrust on Agriculture and Rural Economy: Is it a game changer?

It has now been agreed upon by almost everyone that the recent budget has a distinct tilt towards agriculture, farm sector and rural economy. It is being argued that this tilt is due to the impression or rather criticism against the government that it was pro-capitalist, pro-industry and anti-farmers. The finance minister has listed a series of policies and measures that are aimed at alleviating distress in agriculture and rural economy.


Agriculture is a major contributor to the nation’s economy and it provides livelihoods for more people than any in other economic sector, particularly in rural India. About 68% of the country’s population lives in rural areas, according to the World Bank.

  • However, agriculture industry has struggled since the monsoon rainfalls have been poor for two consecutive years, which has severely affected crop production. This, in turn, has hit rural spending. Several farmers have taken their lives following crop failures, unable to cope with the burden of their debts – an issue that has gained worldwide media attention in recent years.
  • Mr Jaitley’s focus on rural India in his budget was seen by many as an effort to win over voters, but the country’s rural and farming economies desperately need some help.

What’s in the budget for Agriculture?

Finance Minister has announced the allocation of almost 360 billion rupees (more than $5.25 billion) toward agriculture and farmers’ welfare. More than two-thirds of that money will go toward irrigation and sustainable management of water resources.

  • Another 55 billion rupees (over $800 million) was allocated for a government crop insurance scheme. A separate corpus of 150 billion rupees (almost $2.2 billion) was provisioned for subvention of interest on loans taken by farmers.
  • In addition, the focus on organic farming is expected to help farmer incomes in rain-fed and stressed areas.
  • The proposed allocation under the Pradhan Mantri Grameen Sadak Yojna has been increased to 27,000 crore, with the aim of connecting 65,000 eligible habitations by constructing 2.23 lakh km of roads by 2019. This is expected to significantly improve farm-to-fork linkages, facilitate expansion in distribution for consumer goods companies, and reduce wastage in the value chain.
  • The government also announced its commitment to achieving 100 per cent village electrification by 1 May 2018, for which 8,500 crore has been provided for Deendayal Upadhayaya Gram Jyoti Yojna and Integrated Power Development Schemes. This will further benefit the rural markets by improving cold chain infrastructure thereby reducing wastage, improving availability of perishables and increasing farmer income by reducing dependence on fuel.
  • To improve supply of farm credit, the target for agricultural credit has been increased to 9 lakh crore for FY17, with a provision of Rs 15,000 crore towards interest subvention.
  • The allocation under the MGNREGS has been enhanced from 34,700 crore to 38,500 crore in FY17. This is expected to provide an additional safety net for the rural workforce during the non-harvest season.

Is it enough?

Finance Minister, in his budget speech, talked about doubling farm income in the next five years. While this promise is certainly laudable, the blueprint to achieve this appears doubtful—at least going by the numbers in this budget.

While the budget of the ministry of agriculture has been enhanced from Rs.17,000 crore in the last budget to Rs.36,000 crore now, most of this increase has been in the Pradhan Mantri Fasal Bima Yojana and interest subsidy on short-term credit to farmers. Excluding these two programmes, the ministry’s budget has been increased only marginally. While the fertilizer subsidy has been cut by Rs.2,438 crore, the amount of expenditure budgeted on irrigation is only Rs.2,340 crore. Besides, the delay in implementation of the National Food Security Act (NFSA) and the reduction in food subsidy by Rs.5,000 crore in this year’s budget do raise concerns on the government’s intention on the NFSA.

But what is required at the time of rural distress is not just long-terms plans of rural rejuvenation and crop insurance but also policies to provide relief in the short run. The announcement for an increase in expenditure on MGNREGA and Pradhan Mantri Gram Sadak Yojana is welcome in this regard. Both these programmes have not only proved useful in building rural infrastructure, one of the nine pillars mentioned by the finance minister, but they have also been able to generate employment and income for the rural poor.

As against the actual expenditure of Rs.35,766 crore last year, this year Rs.38,500 crore has been allocated for MGNREGA. While this is an improvement over the last year, it is less than the total commitment of Rs.39,000 crore promised by the finance minister last year (Rs. 34,000 crore in the budget with an additional provision of Rs.5,000 crore). Nonetheless, the increase is a welcome step toward recognizing the potential of MGNREGA in reducing distress in rural economy as well as in infrastructure creation. Similar increases in other rural development schemes such as the Indira Awaas Yojana will certainly contribute toward creating demand in rural areas.

While concerns will remain on the ability of this budget to deliver on the promise to revive the rural economy, this budget has certainly shifted the focus of government policy to the crisis in the countryside. This budget may avert the crisis in rural areas and may stop it from worsening, but prudent government policy also requires that some of these measures are backed up with long-term measures to insulate the rural economy from such episodes. This requires re-energizing the rural economy as an engine of growth at a time when other parts of the economy are not doing well.