#dnaEdit: Well fare budget

It has been possible for finance minister Arun Jaitley to ride on the back of an estimated growth ranging from 7% to 7.75% — as indicated in the Economic Survey, 2015-16 — and fiscal deficit pinned to 3.5% in 2015-16, to announce a slew of measures that almost amounted to a spending spree for the farmers, the rural areas, irrigation, social sector, infrastructure that can be virtually described as politically sensitive. 

Jaitley in his post-budget press conference defended the budget saying that there was rural distress and the government had to address the problem. His officials who were there with him at the conference assured that the government would not be crowding out the private sector borrowings from the market as the government’s own market borrowing would be very limited. According to the pie-chart that showed how the rupee was spent, only 21 paise accounted for government’s market borrowings.

The finance minister had acknowledged that there was an economic crisis in the world economy, and that there was need to build firewalls so that the Indian economy is not affected by the external market volatility. But he has not really indicated any specific measures with regard to these firewalls.

India seems to be in a strangely good position where its economic growth is quite robust despite fall in its export earnings, and its foreign exchange reserves are at a comfortable US$350 billion. The puzzle is that the Indian economy continues to grow on the basis of domestic demand, compared to that of even China, and that it can keep the troubles of the global economy at bay.

It would be easy to term the pro-rural allocations as motivated by politics, and that Prime Minister Modi and his advisers are keenly alive to the electoral compulsions of the state assembly elections coming up this year and in the next. Though it would be futile to deny the political considerations, there can be no denying the fact that the government has to allocate sufficient funds to the rural sector if there is to be an overall GDP growth. 

For the last one-and-a-half years, the Modi government was keen to push the amended Land Acquisition Bill because some of its ministers argued that the farmers did not want to be tied down to agriculture and they were keen to move away from the land. 

The government perhaps hopes that after putting so much money in the rural sector, it would stimulate spending and that it will indirectly boost both the manufacturing and services sectors. This is in contrast to the earlier view of shifting rural populations to the new cities and to boost urbanisation because overpopulated rural India was seen as a liability.

The finance minister is also depending on revenue buoyancy so that the various budgetary allocations he has made will not expand the fiscal deficit, and make it difficult for the government to maintain its rural spend. The revenue and tax collections will have to come from the manufacturing and service sectors as the earnings from exports will be again on lower side.  

Though part of the allocations can be seen as investments as in irrigation and rural electrification, it is not certain that what has been marked under agriculture and farmer welfare would qualify to be described as an investment. How does the government plan to spend this welfare allocation? Or, is this a sleight of hand where the money spent for irrigation, seeds, soil health will be accounted under the welfare head?