This was the toughest and most important of the five budgets that Finance Minister Nirmala Sitharaman has presented. Difficult, given that this was the last full budget before the general election and the pre-election budget comes with the expectation of being populist. But it was also most important given the state of the economy where the budget was more of a financial accounting exercise. This budget was his last chance to give direction to the economy and prepare a roadmap for economic reforms.
There is now a general consensus that the economy is in trouble. This is true for urban areas where the middle class is the most affected. But the crisis in rural areas has been deeper and longer. All available data on farmers’ income and real wages in rural areas point to declining incomes in rural areas. The nature of the crisis has also provided an opportunity to correct the structural imbalances that plagued the economy not only during the pandemic but before as well. The slowdown in the economy after 2016-17 was clearly driven by declining demand in the economy, both consumption and investment. Reviving demand, especially given rural demand, a large population share, is Hobson’s choice in the current context.
The announcements made in the budget not only ignore the reality but the prescriptions are also contrary to the demand of the situation. This is true not only for agriculture but also for rural development which plays an important role in generating employment and facilitating non-farm diversification. There has been a decrease in the budget of the agriculture sector. 8,500 crores. There has been a decline in the budget allocation of most of the schemes. Even the allocation for the government’s flagship scheme, the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan), has seen a decline. 60,000 crore against actual disbursement of Rs. 66,825 crore in 2021-22. This has happened despite employment surveys reporting an increase in the number of households in agriculture.
While there is certainly a need to compensate farmers through cash-transfers, it does not offer any solution to the real problem of farming. The sharp increase in the cost of agriculture has reduced profitability. These are likely to increase given the budget, which makes a drastic reduction in fertilizer subsidy 50,000 crores. Clearly, cash transfers are unlikely to offset rising input costs, but at least the government needed to step up investment levels in this sector.
While agriculture issues remain neglected, even the non-agriculture sector has been deprived of basic budgetary allocations. While the government itself has acknowledged the important role of the National Rural Employment Guarantee Scheme (NREGS) during the pandemic and even before it, the budgetary allocation for the scheme itself has seen a drastic reduction. 60,000 crores. The actual expenditure on NREGA in 2021-22 was 98.468 crores which fell short 89,400 crore in the Revised Estimates of 2022-23. Given that NREGA wages have been revised upwards and are likely to be revised again in April, this is unlikely to be sufficient for even half of the work created last year. The same is true for most other schemes, except rural housing, which has seen growth. But the allocation for the rest will remain the same, revised or less than the budgeted expenditure of the previous year. The minimum social pension of social pension has also remained the same despite the fact that these were fixed more than 15 years ago.
This budget was not a normal budget, and therefore should not be viewed in a standard accounting framework. While there were certainly expectations that the budget would at least increase spending for both social security and investment in the rural economy, the actual allocations have not been enough to protect an already distressed income situation. The impact of budgetary cuts is likely to go beyond aggravating the crisis and its impact on the lives and livelihoods of most workers in rural areas. Given the domestic and international economic situation, the implications for the stability of the already fragile economic recovery are likely to be severe.
Himanshu is Associate Professor at the Center for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University.
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