India’s 2016 Budget & Rural Development
Source: Flickr, U.S. Embassy New Delhi

India’s 2016-2017 budget unveiled by the Finance Minister Mr Arun Jaitley on 29 February focuses heavily on rural development and boosting farm growth. The budget is centered around nine pillars of which two focus on: (1) agriculture and farmers’ welfare with a target of doubling farmers’ income in next 5 years, and (2) rural sector development with a focus on employment.  In his address, Mr Jaitley said that a total of USD$12.7 billion will be allocated to rural development as a whole which represents an 84 percent increase over the previous year. This amount is largely covered by the first two pillars, however the budget does allocate more finances to other sectors related to rural development. For instance, the budget also focuses on expanding rural connectivity and infrastructure through pillar five.

The first pillar in the budget, focusing on agriculture and farmers welfare, has been allocated a total sum of USD$5.3 billion. Around two thirds of this sum will go towards irrigation and the sustainable management of water resources, including a focus on 89 irrigation projects which will lead to the irrigation of 8 million hectares of farmland. Considering that around 60 percent of India’s farmland is rainfed and farmers have experienced two years of successive droughts, this focus is expected to improve their livelihoods and resilience. Additionally, USD$800 million of the budget is allocated to providing farmers insurance. In order to further support farmers overcoming droughts and to help sustain productivity improvements Mr Jaitley also targets providing USD$130 billion of agricultural credit to farmers. Other initiatives that the Minister highlighted in his budget for this pillar include funding for the Soil Health Cards Scheme, organic farming and farmer credit.

The second pillar of the budget includes USD$5.62 billion allocated to the rural employment scheme that provides 100 days of guaranteed work to India’s poorest rural households. This amount will be the highest amount spent on the scheme since it was launched ten years ago. It is also reverses a number of years of reductions in funding for the scheme. Previous research has shown that this scheme provides essential additional income to rural households as well as supports long term increases in agricultural productivity.

The budget also has a heavy focus on the development of infrastructure (Pillar 5) throughout India, with an allocation of USD$32.5 billion for all infrastructure projects in India. Of this, $2.8 billion of the budget will be allocated to the Pradhan Mantri Gram Sadak Yojana (PMGSY) which is a nationwide plan to provide ‘good’ all weather road connectivity to unconnected villages. This sum is a significant increase over previous years and is expected to bring forward the completion of the project by 2 years to 2019. The budget allocated significant funding to village-level governing bodies. The budget also provides significant amounts of funding for improvements in health, education and other social projects.

Multiple commentators have highlighted the merits of the budget and suggested that after years of rapid growth and widening inequalities India requires more policies that support the poor and grassroots development as well as target inequalities.  However, a number of actors have highlighted a major concern around the sources of financing for increases in expenditures in the new budget. Overall the 2016 budget marks an increase of USD $17.74 billion from the 2015 budget. The budget expects to cover these expenditures through ambitious targets for revenues from: the divestment of state-owned companies, taxes and telecom bandwidth sales. If these revenues fall short it is likely that the government will need to finance its budget by taking on additional debt.

In the budget Mr Jaitley also announced a major policy change to the food processing sectors allowing 100 percent foreign investment, up from 51 percent in processed food retailing on the condition that the products are manufactured in India.

Mr Jaitley’s full speech to be parliament can be accessed here.


By:  Bas Paris

Photo credit:Flickr, U.S. Embassy New Delhi