Rural India stares at Union Budget

Analysts predict the Budget due in February will focus on rising farm distress and unveil cash transfers for fertiliser subsidies, crop insurance and possibly higher guaranteed crop prices

While India’s consumption growth has been perceived as resilient, it’s largely being funded by declining savings. Image source: Reuters

The Bharatiya Janata Party's victory in Narendra Modi's home state of Gujarat, albeit with fewer seats, has sparked speculation in the political circles that the government might come up with some populist policies for the rural sectors given the high migration rate from rural areas and the agriculture sector distress reported in the recent years.

More people aged 18-25 are estimated to have voted for the opposition in the assembly election in Modi’s home state of Gujarat, which ended with the ruling party getting its lowest seat tally in more than two decades, according to a Bloomberg report.

The party managed to win the election largely because of its urban voters which is acceptable for this region because of its higher urbanisation rate, but it may not work in other upcoming state and general elections.

"The government should stop the publicity stunts and concentrate on rural issues. The BJP government at the Centre and the state (Madhya Pradesh) have not been successful in addressing issues like fair price for farm produce, irrigation facilities, malnutrition, employment generation and containing high migration rate from rural areas due to lack of job opportunities, among other problems," Bhopal-based Right to Food activist Sachin Jain said.

"This is the nature of Indian politics that governments come up with populist policies in election ahead of elections. What I guess is that the government might announce Universal Basic Income scheme in the coming Budget. But, for that the government most probably will divert fund from Public Distribution System (PDS) scheme. Therefore, it will not be of much help."

"The BJP is unlikely to interpret these results as business-as-usual," Neelkanth Mishra and Deepali Bhargava, analysts at Credit Suisse Group AG, said in a Bloomberg report recently.

They predict the Budget due in February will focus on rising farm distress and unveil cash transfers for fertiliser subsidies, crop insurance and possibly higher guaranteed crop prices.

While India’s consumption growth has been perceived as resilient, it’s largely being funded by declining savings, so a pickup in employment is needed to sustain or spur demand, a Bloomberg report citing UBS Group AG analysts said.

"Our discussions with macro experts and government officials indicate that job creation remains a key focus area, especially going into the 2019 general elections," they said.

Given the fiscal deficit level already touching 112% of the target, the government will find it tough to address all these issues.

However, Bimal Jalan, former governor of the Reserve Bank of India (RBI), recently said fiscal deficit numbers are not important, therefore, the government should spend more on social sectors to create jobs and infrastructure.