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AP Photo /Tsering Topgyal
It’s all in the bag.
BUDGET 2016

The world’s fastest growing major economy has promised to prioritise spending on the poor

This year, India—the world’s fastest growing large economy—will focus on reviving economic growth in its vast, distressed hinterland, while also investing large sums to bolster the country’s creaky infrastructure.

“We believe in the principle that money with the government belongs to the people, and we have the sacred responsibility to spend it prudently and wisely for the welfare of our people, especially the poor and the downtrodden,” India’s finance minister Arun Jaitley said in his budget speech today (Feb. 29).

The government’s anxiety to bring some comfort to the sprawling countryside—home to 70% of India’s population—ahead of a string of key provincial elections is understandable.

However, this big spending on rural India and infrastructure would not upset the country’s budgetary math, Jaitley promised. The government, he said, was “committed to fiscal prudence and consolidation” and, therefore, would not stray from the fiscal deficit target of 3.9% of the GDP for the 2015-16 financial year.

“It is encouraging to see that fiscal discipline has been given priority at today’s budget, though we await the fine-print,” Radhika Rao, an economist at DBS Singapore, told Reuters. “Focus on rural sector spending and roads/highways are along expected lines and positive.”

Unkept promises

In the summer of 2014, Narendra Modi swept into power with a commitment to revive India’s growth engine and a promise to ensure inclusive development in a country where over 172 million people still live under the poverty line.

Two years on, economic growth has somewhat picked up, albeit with some statistical jugglery.

Two years on, economic growth has somewhat picked up, albeit with some statistical jugglery. India’s GDP is estimated to grow between 7% and 7.5% in 2016-17, as per the finance ministry’s economic survey published on Feb. 26.

That makes India the world’s fastest growing major economy, although, if on-ground indicators are anything to go by, the revival isn’t quite as robust.

Following two successive deficit monsoons, rural India is also in distress, with little of the country’s purported stellar growth trickling into the hinterland. This lacklustre performance in the countryside is impacting the government’s political fortunes. In last year’s elections in the eastern Indian province of Bihar, for instance, an alliance led by Modi’s Bharatiya Janata Party-led alliance was roundly defeated.

Over the next few months, key states, including West Bengal and Assam, will go to the polls, followed by Uttar Pradesh and Punjab next year. Consequently, Modi cannot afford to create the impression that he isn’t spending enough on the countryside.

Rural revival

In today’s speech, Jaitley said his agriculture welfare policies will strive to double farmers’ income over the next five years. In all, the government plans to spend Rs87,765 crore on rural development in 2016-17.

Push for rural electrification: Last year, prime minister Modi had announced that his government would provide electricity to all Indian villages—over 18,000 of them had no access power in April last year—in the next 1,000 days. India is home to roughly 600,000 inhabited villages.

As on Feb. 23, 5,542 villages had already been electrified, Jaitley said, and the remaining settlements would have access to power by May 01, 2018. For this, the government will spend Rs8,500 crore under the Deendayal Upadhyaya Gram Jyoti Yojna.

Irrigation: The government plans to bring some 2.85 million hectares of land under irrigation. So far, out of 141 million hectares of net cultivated area, only about half of India’s farmland is under irrigation.

Jaitley has also promised to fast-track 89 already commissioned irrigation projects, which once completed would add another 8 million hectares to India’s total corpus of irrigated farmland.

The Modi government is pushing hard to modernise India’s farming ecosystem.

“These projects require Rs17,000 crore next year and Rs86,500 crore in the next five years. We will ensure that 23 of these projects are completed before March 31, 2017,” the finance minister said.

Organic farming, soil health cards and e-market: The Modi government is pushing hard to modernise India’s farming ecosystem. Here are the three major announcements today that could bring the latest technological advancements to the country’s farmers.

  • Creation of common e-market platform to be deployed across 585 regulated wholesale markets
  • Bringing 500,000 acres of land under organic farming over a three-year period
  • Expansion of the current soil health card scheme, which provides farmers information on the nutrient level of soil. By March 2017, this scheme will cover 140 million farm holdings

Health: The finance minister also announced a health insurance scheme to protect “one-third of India’s population against hospitalisation expenditure.” In fiscal 2015, India’s insurance penetration stood at 3.3%—a 10-year low.

The government will launch a new health insurance scheme that will provide insurance cover of Rs100,000 per family, alongside increased access to affordable generic medicines.

In order to curb the use of biomass fuel for cooking, the government will ensure that families below poverty line (BPL) receive subsidised cooking gas connections.

“This will significantly improve the health of women, and those BPL families who suffer adversely from the ill-effects of chulha cooking,” Jaitley said.

Employment: In the run up to the 2014 elections in India, Modi emerged as a vocal critic of the MGNREGA, the flagship rural employment scheme of the previous Congress-led United Progressive Alliance government.

“This is a living monument of your failure to tackle poverty in 60 years. With song and dance and drum beat, I will continue with the scheme,” Modi had said last year.

In order to curb the use of biomass fuel for cooking, the government will ensure that BPL families receive subsidised cooking gas connections.

This year, however, the Modi’s government seem to have embraced the scheme, which some describe as one of the world’s largest public works programme. The government will spend Rs38,500 crore this year, a little less than the Rs38,552 crore the Manmohan Singh government spent in 2013-14. “If the total amount is spent, it will be highest budget spend on MGNREGA,” Jaitley said in his budget speech.

Crop insurance: The government will spend Rs5,500 crore for a new crop insurance scheme called Pradhan Mantri Fasal Bima Yojana, launched by Modi in January.

The government-sponsored scheme will help farmers hit by the uncertain weather conditions. At present, a clutch of private crop insurance schemes is available in the country but the penetration of insurance is still low.

For instance, only 22% of the 195.26 million hectares of cropped area is insured, the Indian Express newspaper reported last month. The new scheme will help deepen the insurance penetration in the country, at a time when the all-important monsoon rains are proving to be increasingly erratic.

Infrastructure

Infrastructure has been another major area of thrust in the finance minister’s budget. In all, the Modi government will spend Rs2.18 lakh crore on roads and railways this year.

More roads and kickstarting investments: In line with its rural push, the government has allocated Rs19,000 crore to the Pradhan Mantri Gram Sadak Yojana for 2016-17 to develop rural roads. If the contributions from state governments are added, a total of Rs27,000 crore will be spent on this scheme.

“In the roads sector, there were more than 70 projects that were languishing at the beginning of the year, due to legacy factors. The aggregate length of these projects was about 8,300 kilometres involving more than Rs1 lakh crore investment. With exemplary and proactive interventions, nearly 85% of these projects have been put back on track,” Jaitley said.

This year, the government will spend Rs97,000 crore on some 10,000 km of new roads. “This will be much higher than in the two previous years,” Jaitley added.

In a major shift, the government has also proposed to open up the road transport sector to private participation in the passenger segment. This could go a long way in boosting both the quantity and quality of road transportation in the country.

More airports: Even as India grapples with ghost airports and an ailing airline sector, the Modi government wants to pour more money into aviation infrastructure.

“In the civil aviation sector, the government is drawing up an action plan for the revival of unserved and underserved airports. There are about 160 airports and airstrips with state governments, which can be revived at an indicative cost of Rs50 crore to Rs100 crore each,” Jaitley said.

Even as India grapples with ghost airports and an ailing airline sector, the government wants to pour more money into aviation infrastructure.

Besides, the central government will partner with the states to develop some of the airports for regional connectivity. It will also develop 10 non-functional airstrips.

Oil and gas: Hydrocarbons form a major chunk of India’s import basket, which the government wants to cut down on. “India is blessed with rich natural resources, including oil and gas. However, their discovery and exploitation have been below our potential,” Jaitley said.

Faced with rising demand but near-stagnation in output, the government will incentivise gas production from deep-water, ultra-deep-water, and high pressure-high temperature areas.

Verdict

Experts have called this a “fire-fighting” budget, which could help boost growth in Asia’s third-largest economy. Here are some reactions from some of the leading economists and bankers in the country:

“At first sight, it’s a good budget, a fire-fighting budget,” Amitabh Dubey, director at India Research at Trusted Sources, told Reuters. They’ve announced some ease of doing business measures that are positive. But, in other ways, it’s a classic tax-and-spend budget.”

Ashutosh Raina of HDFC Bank in Mumbai was more unambiguous in his praise. ”Really excellent budget. The adherence to fiscal discipline, with emphasis on growth and development, increasing infrastructure spending… are key elements of this year’s budget,” he told Reuters.

“We were expecting focus on rural economy and infrastructure and finance minister has done that. The finance minister has touched on every aspect. It’s a well-rounded, progressive budget,” Sumit Mazumder, president of the Confederation of Indian Industries, said.

Read all our stories on Budget 2016 here.

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