Incrementally raising rural-urban linkage

As expected, the central budget for 2009-10 has reiterated the goals of high and inclusive growth. A high economic growth rate of 9% or more can hardly be achieved without a good performance by the rural economy. After all, the rural economy accounts for well above 40% of the national output.

Some questions one would have on the impact of the central budget are: does this budget raise the confidence of rural entrepreneurs into making more investments? What would rural India have looked for in the central budget? How is the rural-urban development divide to be bridged?

The budget appears to assign government expenditures the key defensive role in seeing through the current the global economic crisis. Is rural India the other pillar of stable source of demand for goods and services today? The farm loan waivers and interest rate subventions have been a big draw in the past. The 2009-10 budget has noted the importance of both. On an average, the scheme of the last year waived off nearly Rs18,000 per eligible farmer.

Continuing its emphasis on increasing the flow of institutional credit to the farm sector, the present budget makes a provision for reducing the interest rate on good borrowers by another percentage point. Given that agriculture is an anchor for the rural economy, the attempts to shore up agricultural sector would also benefit the rural sector.

Economic policies have generally looked at rural India from the perspectives of agriculture, poverty alleviation, and bridging the rural-urban development divide. Bridging the divide would no doubt increase productivity of the massive rural labour force and yield high returns on such investment.

Surprisingly, only about 50-60% of rural GDP is from agriculture and there is a great deal of other economic activity that provides income to rural households. With an estimated 15% of the population living in urban-like or large habitations, which of the two faces of the rural economy has the central budget for 2009-10 chosen to address?

There are as yet no statistics showing how much money goes to rural areas and how much to the urban. Rural India would be as much concerned about the overall impact of the budget on the economy. Jobs for rural youth who may find jobs in nearby towns can hardly be expected to rise in times of slower economic growth. Changes in customs duty on farm output would also be a matter of concern as would the excise rates on tractors, pump sets, and price of diesel. There may well be growing anxiety that the complete insulation from income tax may be challenged one of these days.

The present budget has not made any significant changes to the present structure of rates. The move to GST next year would be of much greater importance. What the budget has offered is a significant step-up of welfare programmes. The provisions for NREGS, Bharat Nirman, NRHM, Mid-day Meal Scheme, Indira Awas Yojana and the new Food Security Bill have increased significantly and they all have considerable flow of resources intended for the rural sector.

The economic growth of the past decade has now put more money in the hands of the government. The central budget now provides for almost Rs10,000 for every man, woman, and child. Obviously, rural India would appreciate good, well-functioning infrastructure as much as the others.

Rural India is in some ways what India is to the global economy. It is large, poor, but it is home to a vast labour force and increasingly where the consumer market is growing. The car makers, two-wheeler manufacturers, and TV makers would attest to this.

Strengthening rural-urban linkages by improving rural infrastructure is an essential step for making rural India a partner in achieving a high and sustainable overall economic growth. The budget may only be making incremental moves towards this end.

The author is senior fellow, National Council of Applied Economic Research.