A Budget to bridge divides

Growth and development can’t be selective. Countries and economies have done best when most parts of their region and societies have benefited from wealth generation. Over 25 years of economic reforms have helped the country reach several key milestones.

The NDA government under Prime Minister Narendra Modi had a slew of issues to deal with when it took charge in May 2014. Since then it prioritised a few issues that it has been trying to address. Health, sanitation, financial inclusion, investment slowdown and tax reforms. On most of these fronts, much has been achieved.

About 2 crore new toilets have been targeted for the year. With the JAM trinity, 30.8 crore bank accounts have been created with a sharp fall in zero balance accounts that indicate active usage. For investment slowdown, the government has brought in legislation like the Insolvency and Bankruptcy code that allows banks to emerge from the burden of bad loans. And the introduction of GST has allowed a fundamental change in tax administration.

In each of these and other efforts, there have been elements of addressing the severe divides between rural areas and the cities. On most human development indicators, rural areas are worse off than urban. Perhaps the one parameter where villages do better is air and water pollution. Cities are in a terrible state while the air and water in rural areas are still relatively clean.

The Modi government has tried to directly address the divide with specific efforts with Budget announcements that build on previous policies.

The most important aspect of boosting the rural economy is to build strong connectivity on which economic activity travels. Investing in 30,000 km of rural roads will help enhance access to the many small and medium enterprises that have to move closer to cities for better infrastructure. Finance Minister Arun Jaitley declared that loans worth Rs 6,300 crore were given to small entrepreneurs. These loans will make business sense once the entrepreneurs find it easy to access markets.

It is important to make the distinction between support to the farm sector and investing in the rural economy. Increased subsidies or benefits to farmers are undermined by lack of facilities in rural areas.

The focus on investing in the rural economy implies a deeper consequence than just offering fertilizer subsidies.

The plan to build 42 food parks near farming areas is sensible and should have been in place years ago. Food processing units close to the farm can do well if they are well connected by roads to city markets. Farmers will benefit by quick offtake of their produce while local youth will get employment in the factories. Farmer Producer Organisations or FPOs being encouraged by the government will allow small and marginal farmers to come together for greater profit generation.

Though the details are not clear, the effort to upgrade 22,000 rural markets are important for enhancing an entrepreneurial ecosystem. These steps, implemented well, can address the key problem of making farming profitable. The challenge, of course, is to ensure that these policies are executed well. Here the use of digital platforms should help overcome resistance from rent-seekers who prevent open access to farmers. The electronic national agriculture market effort is gaining momentum but more states have to ensure participation.

For such initiatives, the focus on digital connectivity is as important as roads and highways. The Bharat Net project to provide broadband access to 1,50,000 villages is expected to be completed by end of 2018. Plus there is a plan for set up 5,00,000 Wi-Fi spots across the country offering easy access to information and e-commerce to local traders. These steps put together will further reduce the digital divide within the country while allowing rural economy comparable facilities for trade and agriculture.

As economic activity is rekindled by these efforts, rural income and purchasing power will rise naturally triggering a consumption demand. Consumption in rural areas is important for the industry too. As the industry begins to increase its capacity utilization in manufacturing, long-term sustained demand will arise from rural areas where per capita income is expected to rise.

Divided India will grow unevenly and in short bursts. Sustained growth requires that the consumer might of the 1.3 billion is enhanced and harnessed. India can’t just be an economy of 30 crore middle-class people. It needs the other billion to grow as well. The federal structure of Indian polity can contribute to simultaneous efforts in all states. The Budget announcements by Jaitley build on existing initiatives and hopefully have benefited from the experience of the past. Inequality is a serious challenge for India where billionaires are created faster than in Europe.

It will take time and tenacity for the government at the centre to deliver these promises in collaboration with the state bodies. Hopefully, these will be delivered within deadlines.

Pranjal Sharma is an economic analyst and author of ‘Kranti Nation: India and The Fourth Industrial Revolution’