Budget 2016 – A big push to Rural Demand

With rural incomes at a 5-year low, the thrust of the Union Budget 2016 was always going to be on providing a rural push. But what the budget 2016 did provide was far greater than what had been anticipated. Here are some key announcements in the Budget which will play a catalytic role in spurring rural demand. This is one of the most important themes of Union Budget 2016.

Big dole out to the farmer community…

With rural incomes falling and farmer suicides on the rise, the government has been quite generous towards the farmer community. There is a massive Rs.35,984 crore allocation to agriculture and farmer welfare. A special allocation of Rs.5,500 crore has been made to make the Crop Insurance Scheme more amenable and meaningful to the farmers. Currently, the Crop Insurance has certain shortcomings in the form of high premiums and ignoring individual farmer travails. These are being addressed through the revamped crop insurance scheme. The good thing about this budget has been that it has made an allocation of Rs.15,000 crore towards interest subvention for farmers so that the burden does not fall on the banks. Surely, the farmers have really got a favourable push in this budget.

Focusing on irrigation; and rightly so…

The one reason inflation is not under control in India is due to sticky food prices. The price of food products is sticky because farming is too dependent on the vagaries of rainfall. This budget rightly focuses its energies on developing the irrigation argument. To begin with, nearly 89 irrigation projects are being fast-tracked to cover 28.5 lakh hectares of land under the ambit of irrigation. NABARD will also create a dedicated long-term irrigation fund with a corpus of Rs.20,000 crore. These are far reaching measures as the thrust now needs to be to ensure that the price of food grains do not remain vulnerable to the vagaries of the monsoons. There is also a simultaneous plan to revamp the depleted ground water levels across villages.

Alternative jobs in rural areas; reviving MNREGA… 

To the credit of the government, it has brought back the MNREGA program of the previous UPA government in a big way. It needs to be underscored that the MNREGA had played a stellar role in generating rural employment during the UPA regime and the current budget has rightly focused on that. The budget envisages 5 lakh farm ponds and dug wells in rain-fed areas. In addition, the budget also envisages 10 lakh compost pits for production of organic manure. Both these efforts are likely to be undertaken under the MNREGA program as a means of rural employment. This is very critical because it enables the entire rural family to be gainfully employed and gives them the much needed supplementary income at a time when farming is seeing falling ROI. 

Changing the face of rural infrastructure…

This budget has made a total allocation of Rs.88,000 crore for the rural sector, which is substantially higher than last year. In addition, this budget has set the tone for 100% rural electrification by May 2018 and that in itself is likely to catalyse growth in rural areas through a multiplier effect. The budget 2016 has made an allocation of Rs.19,000 crore under the Pradhan Mantri Gram Sadak Yojana to connect another 65,000 villages. This is proposed to be achieved by 2019.

To put it concisely, this budget has made rapid strides in the area of empowering rural households. Of course, a lot of the success of these schemes will depend on the implementation. But the fact that the Rs.38,500 crore has been allocated under the MNREGA scheme, shows the seriousness of the government on a rural thrust.

It will be interesting to see the outcome of this allocation. But a few pointers stand out. Firstly, if this succeeds the reliance on monsoons will come down and food inflation should become less sticky. Secondly, increase in rural income has a high correlation with higher rural demand as seen in the past. This is due to the high marginal propensity to consume in these areas. That is good news for a variety of industries like FMCG, consumer durables and two wheelers. Surely, rural India badly needed a thrust and this budget has done exactly that!

To read more about Union Budget 2016 highlights, click here

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