Topic 1 : Ignoring an agricultural sector in distress
Context: The revival of agricultural growth from its long-term slump requires imaginative policy shifts and decisive fiscal measures, but the Budget provides no indications of such a plan or intent.
Introduction
- The report released by the Finance Ministry and the vote-on-account presented by the finance minister are concerned more about portraying a glowing image of the government than about the financing plans for 2024-25.
- For the same reason, one is constrained to confine the discussion on the Budget to one question: was the distress in agriculture over the past decade alleviated by policy, or has it been exacerbated?
Rural India's Economic Crisis: Key Factors and Insights
- There was a strong downward pull on agricultural prices leading to a squeeze on farmers’ incomes.
- The sectoral deflator in agriculture and allied sectors — estimated as the difference in the growth rates of gross value added in current and constant prices — declined from 9.4 in 2013-14 to 5.0 in 2019-20 and 3.7 in 2023-24.
- The stagnation or fall of agricultural prices in the market was not ameliorated by any rise in minimum support prices (MSP).
- For major foodgrain crops, the MSPs rose by an average of 8-9% per annum between 2003-04 and 2012-13, but only by about 5% between 2013-14 and 2023-24.
- The refusal to adequately raise MSPs affected the government’s ability to intervene effectively in the market to control prices — on the farmers’ side as well as on the retail side.
- A promise was made that real incomes of farmers would be doubled between 2015 and 2022. But the issue appears to have disappeared from policy and media discourse in recent years.
- In fact, real incomes of agricultural households from cultivation fell by about 1.4% between 2012-13 and 2018-19. The fall of incomes from cultivation was not only owing to the stagnation or fall of agricultural prices, but also due to a sharp rise in the costs of inputs in agriculture, particularly fertilizers.
- Rural unemployment rose between 2011-12 and 2018-19. For rural men, the rise was from 1.7% to 5.6%. For rural women, the rise was from 1.7% to 3.5%. Rural unemployment rates fell after 2018-19 but their levels remained higher than in 2011-12 in 2022-23: at 2.8% for men and 1.8% for women.
- More importantly, the fall of rural unemployment was accompanied by a rise in the share of self-employed women among all women workers.
- The real wages in rural India have never risen after 2016-17 and have even fallen after 2020-21 – particularly in the context of the crowding of the agricultural labour market.
- The public investment in agriculture, in general as well as in specific fields like agricultural research and extension, were stubbornly stagnant, and occasionally even fell, over the past decade. Consequently, capital investment in agricultural and allied sectors did not rise.
- Most of the long-term bank credit supplied to agriculture was also diverted away as short-term loans to corporates and agri-business firms.
Budget Estimates and Agricultural Growth Decline
- Yet, the Finance Ministry’s report and the Budget speech attempt to paint a totally different picture. They cherry-pick and cite absolute numbers on the increases in agricultural production.
- But they ignore the fact that the index numbers of production of all principal crops grew by 3.1% annually between 2003-04 and 2010-11, but only by 2.7% annually between 2011-12 and 2022-23.
- If we consider the index numbers of yield, the fall was sharper: from 3.3% per year to 1.6% per year.
- In short, the fortuitous spurt of agricultural growth during the pandemic years was inadequate to reverse the long-term decline of agricultural growth beginning from the early-2010s.
- The Budget Estimates for 2024-25 also do not inspire confidence. There is no plan in the Budget to substantively reverse the decline of growth in agriculture — either through welfare measures or through investment measures.
- In 2024-25, the most important heads and flagship schemes in agriculture and allied sectors are to face a spending cut.
- Fertilizer subsidies are to fall from ₹1.9 lakh crore in 2023-24 to ₹1.6 lakh crore in 2024-25.
- Food subsidies are to fall from ₹2.1 lakh crore in 2023-24 to ₹2 lakh crore in 2024-25. The allocation for the Pradhan Mantri Gram Sadak Yojana is to decline from ₹17,000 crore in 2023-24 to ₹12,000 crore in 2024-25.
- If ₹90,000 crore was the spending under MGNREGS in 2022-23, the allocation for 2024-25 is only ₹86,000 crore. The transfers under the PM-Kisan scheme remain the same as during its inception in 2019, implying a fall in the real value of cash transfers.
- There was much mention in the Budget speech on blue revolution in the fisheries sector, but the budgeted allocation for the sector has been increased by only ₹134 crore.
- The budgeted allocation for the Department of Animal Husbandry and Dairying has increased only by ₹193 crore between 2023-24 and 2024-25.
Conclusion
- The revival of agricultural growth from its long-term slump requires imaginative policy shifts and decisive fiscal measures. But the interim Budget provides no indications of such a plan or even intent.
Topic 2 : Poll posture: On the 2024 Interim Budget
Context: Slowing growth and rising inequality must both be tackled head-on
Introduction
- Finance Minister Nirmala Sitharaman’s sixth consecutive Budget speech was an election-eve, self-congratulatory report card on the economic achievements engendered by Prime Minister Narendra Modi and the two governments he has led since 2014.
Finance Ministry’s review of the economy’s performance.
- Echoing the Finance Ministry’s review of the economy’s performance, and stating that Mr. Modi had inherited a situation replete with ‘enormous challenges’ when he assumed office, Ms. Sitharaman asserted that those were surmounted through ‘structural reforms, pro-people programmes and the creation of opportunities for employment and entrepreneurship’.
- A reinvigorated economy had helped ensure that the fruits of development started reaching the people at scale, imbuing them with a sense of purpose and hope, and translated into a bigger mandate five years ago, she averred.
Vikas Bharat by 2047
- In a clear sign that the Bharatiya Janata Party-led regime is far more confident of returning to power this time around, the finance minister eschewed any announcements that could be seen as targeting a particular constituency of voters.
- Instead, the focus was on talking up the commitment to ‘an inclusive and sustainable policy approach that had led to the attainment of a more comprehensive GDP of governance, development and performance’.
- A nonchalant observation that the government would detail a road map for attaining a ‘Viksit Bharat’ by 2047 in its full Budget in July, was premised on the certainty of winning a ‘resounding’ electoral mandate.
Budget Numbers and Fiscal Consolidation
- The Budget numbers posit a continuing journey on the path of fiscal consolidation, with the Revised Estimates (RE) pegging the current year’s fiscal deficit at 5.8% of the GDP, a 10-basis points improvement from last February’s Budget Estimate (BE) of 5.9%.
- This, the Minister has achieved by pruning effective capital expenditure by ₹1 lakh crore in the RE, a moderation in nominal growth estimates notwithstanding.
- For 2024-25, she has projected a sharper consolidation and pegged the deficit at 5.1% by factoring in a 14% jump in revenue receipts on a BE basis, that is expected to help offset an 11% increase in estimated capital expenditure to ₹11.11 lakh crore.
- Finance Minister, who emphasised a tripling in the capital spending outlays over the past four years that had had ‘a multiplier impact on growth and employment creation’, however, glossed over the fact that the budgeted increase in capital spending next year is set to be sharply lower than the 28% jump in the RE versus last fiscal’s actuals.
Conclusion
- At a time when official estimates for private consumption spending show growth at its lowest ebb since the pandemic, the Budget’s stress on fiscal prudence does carry the risk of undermining economic momentum. The bigger challenge is the more worrying possibility of rising inequality.