Budget 2023-24 ignores rural distress, tries to fix demand problem with supply interventions

Source– The post is based on the article “Budget 2023-24 ignores rural distress, tries to fix demand problem with supply interventions” published in The Indian Express on 7th February 2023.

Syllabus: GS2- Budgeting

Relevance:Rural development

News- The article emphasises the need to prioritise allocations towards reviving consumption demand and  spurring private investment .

What are the challenges before the economy?

Per capita incomes in real terms in 2021-22 are still below the 2018-19 levels and the overall growth between 2016-17 and 2021-22 is at its lowest level of 3.7 per cent for any five-year period in the last four decades.

Covid only exacerbated the already fragile economic situation. The most important of these is the decline in demand, both for consumption and investment.

The distress is far more serious in rural areas. Rural wages have stagnated for almost a decade now. Farmers’ incomes have either declined or, at best, stagnated in the last five years.

How has the budget ignored rural distress?

In real terms, the budget has declined by 10 per cent at a time when the agricultural sector is going through its worst crisis.

The rise in input costs for both energy and fertilisers is likely to get worse with the withdrawal of the fertiliser subsidy.

Even the nominal cash transfer that was provided as part of the PM-Kisan has seen a decline in allocation.

 Public investment in agriculture declined by 0.6 per cent per annum between 2016-17 and 2020-21, the last year for which data is available.

The budget for the Ministry of Rural Development is 13 per cent lower than the revised expenditure last year .

The National Rural Employment Guarantee Scheme (MGNREGA) has seen its budget decline to Rs 60,000 crore as against Rs 89,400 crore in the revised estimates for 2022-23.

With spiraling inflation and even the cushion of free food grains having been withdrawn, rural areas are likely to face an uncertain situation.

What are the other issues involved with this budget?

The government’s preference  supply-side interventions even when there is excess capacity in a demand-constrained economy.

It is reflected in an almost one-third increase in allocation for investment.

Given the small share of public investment, it is unlikely to be sufficient unless it is accompanied by the private sector increasing its investment.

This will have a negligible impact on employment and domestic demand given the low employment elasticity of these investments.