Budget 2016: Modi pushes for Horizontal Growth
by Krishnarjun on 15 Mar 2016 2 Comments

The third budget from Narendra Modi government continues focus on Infrastructure with better emphasis on agriculture and rural sectors. Broadly, the NDA government is continuing the development pattern followed for a decade with better emphasis on delivery minus corruption. The flagship programs from UPA government like MNREGA are being continued under this government with better focus on creating productive assets and plugging the massive corruption leaks


Budgets can’t be seen in isolation from the broad socio-economic philosophy of an elected regime and the mandate it received from public. The Modi government achieved success on the agenda of sabka saath sabka vikas with specific promises to farmers, poor and rural India. The Prime Minister during election campaigns and in his first address in Parliament to the BJP parliamentary party after victory declared that his government is dedicated to villages, poor and farmers.


The most visible among BJP supporters, the urban middle class, high paid professionals on social media, some of whom recently took up failed western ideologies on their sleeves, didn’t cheer the budget much as they assumed the Modi government would follow their prescriptions, rules and ideologies. They have an illusion that Modi victory is their hard work and they deserve to benefit the most from the government via tax breaks, foreign investment, urban infrastructure and disinvestment.


Though the significant momentum created by the urban BJP crowd in favor of the Modi campaign is undeniable, his massive victory was clinched with support from groups that were not so favorable towards the BJP in the past, particularly the rural voters and poor. Still, the budget is not about Modi’s gratitude to a section of voters; it is integral to his vision of all round holistic development. To understand the context of the current budget it is necessary to analyze India’s economic growth in the post-economic “reforms” era.


After liberalisation, the Indian economy is extremely skewed towards urban middle classes and elites. The service sector that led India’s growth in the last two decades is dominated by English educated urban-centric groups; except in few states down south and west where awareness and English education permeated to land owning rural groups at the top of the rural hierarchy, huge segments of the rural population has not benefited from the services-led economic boom in the last two decades.


In the year 2013-14, services contributed 57% of Indian GDP but only engage 30% (approx.) of total workforce, Industry contributed 24.7 % with 20% (approx.) workforce and agriculture contributed 18.2% but engaged 50% of total Indian workforce. There is huge gap in income between the sectors with income in the service sector almost double than the average per capita income.


The surplus income in the service sector, mostly concentrated in metros and cities, is creating demand for luxury goods and feeding bubbles in real estate, education and health care. For those engaged in blue collar jobs in manufacturing and rural sectors these important services have become unaffordable. Agriculture is the worst hit sector, taking all the burden of India’s export-oriented growth and foreign investment achieved through currency depreciation.


The period starting from Narasimha Rao reforms to the Vajpayee government is the worst nightmare for those engaged in the agriculture sector and rural India; particularly under the government of Vajpayee the real income in agriculture at the end of his term in 2004 is less than what farmers earned in 1998. This caused massive resentment in rural India and NDA was rightly rejected by rural voters. It massively lost in predominantly agrarian states like UP, Bihar, AP, states that overwhelmingly supported NDA in 1998 and 1999.


At the end of the Vajpayee government in 2004, agriculture share in Indian GDP dipped to 19.03% from 25.79 in 1998 and 29.02 % in 1990 while there is no significant change in workforce engaged in the sector. The succeeding UPA government with all its faults and plots against the Indian nation, got its economic and political priorities right.


The Manmohan Singh government generously increased MSP (minimum support price) prices starting from 2007 and by the end of the decade-long UPA government, the share of agriculture in GDP at 18.2% almost remained at the same level when Vajpayee government left. This UPA government achieved when Indian economy was growing at 9%, which is unprecedented and phenomenal by any measure. Income share maintained at the same level means that for a decade the agriculture sector income also grew at the general rate of economy.


Even after this remarkable feat by the UPA government, the crisis in agriculture is so deep because of persistent utter neglect of the sector since the 1980s which cannot be fixed with just MSP increases; continuing farmer suicides indicate the crisis has not subsided. This is where the approach of the Modi government markedly differs from the UPA government; he is aiming to modernize and transform the agriculture sector.


The farmer-friendly crop insurance scheme introduced this year is the first step towards institutional changes in Indian agriculture. It would at least give a protective shield to the Indian farmer and prevent him from extreme steps in the case of crop failures. The government rightly realized the need for improving irrigation infrastructure at a faster pace.


The budgetary allocations to different sectors, including agriculture and rural sectors are not significantly different under the current NDA government compared to the UPA’s second term, but what would really matter is execution on the ground. The obnoxious corruption in irrigation schemes under UPA, particularly in states like Andhra Pradesh and Maharashtra, is still fresh in the minds of people.


The UPA made right moves on MSP and loan waivers but failed to create infrastructure for agriculture and rural areas on the ground, though it made decent budgetary allocations. Execution on the ground is critical to pull agriculture and the rural sector from distress.


The NDA government is not doing any out-of-turn favor to agriculture and the rural sector at the cost of other areas of the economy. The continuous falling of agricultural production is a threat to India’s food security and unless addressed immediately would have a cascading effect on other sectors.


The crumbling and inadequate infrastructure in the country combined with crisis in agriculture is an emergency situation for the Indian economy. The NDA emphasis on both areas with infrastructure getting the lion’s share in the budget is the right approach and it promotes horizontal growth to strengthen the base of the economic pyramid.


The Prime Minister’s promise to double income for farmers in the next six years is a tall ambition, though it can be achieved. For farm income to double in six years it should approximately grow at 13% a year. This is very challenging but not impossible and can be done with a combination of productivity and price gains in the sector. This would push the overall share of agriculture in GDP above 20%, if the rest of the economy grows at 8-9%. The current NDA government is still following the Vajpayee path when it comes to MSP, the MSP hikes this year and the last two years are below inflation rate.


The emphasis on agriculture, rural areas and infrastructure will create demand in the basic sectors of the economy, providing huge gainful employment to the public. The growth in farm income would translate into growth in basic manufacturing and services. The Prime Minister’s intuitive vision of balancing India’s growth story on three equal pillars of agriculture, manufacturing and services is an extraordinary original idea which is not tested by modern economics yet, but is the right approach to fix the crisis in modern economies and civilisation.


A vibrant agriculture sector engaging a significant happy work force keeps our civilisation grounded. It will be a bulwark against internal threats to democracy and also external threats to the nation as most soldiers come from rural farm families. Agriculture has been a perennial source of socio-political and military leadership in history across continents; the training in farm gives man the ability to be independent and secure.


It’s not a coincidence that democracy in nations and economies that decimated agriculture in society is hijacked by scheming bankers and devious lawyers. Indian democracy despite its deficiencies and disadvantages is vibrant and mostly chooses leaders who resonate with the masses because of significant rural independent base of population. The devious lawyers and bankers though increasingly becoming powerful in Indian democracy are still specimens in TV studios.


Perhaps this is the reason why the plot against Indian democracy and economy thickens each passing day through multiple channels from the top. It seems the current head of RBI dislikes public sector banks and repeatedly terrorizes them under the guise of NPAs. Certainly, willful defaulters have to be penalized, but genuine NPAs are integral to debt economy when it recedes from the peak; they can be possibly recovered through increased lending when the growth cycle picks up again.


The current RBI head is showing undue haste with deadlines to recover NPAs when the economy is just picking up, creating fear psychosis in PSU banks. A diabolical plan is underway to privatise the banking system in India; it’s very unfortunate that Finance Minister Arun Jaitley announced that government is open to reduce its stake in PSU banks to 51%.


If Narendra Modi loses the banking system, which creates and allocates money in the economy, it would be impossible to implement his grand holistic vision. He needs to realize this before it is too late; his vision is being sabotaged from inside his government and through questionable people occupying important positions at the top but unaccountable to Indian democracy and masses.


The journey to fix the farm sector and rural economy has just begun with this budget; it will take a decade at the minimum at the current pace to restore balance in the Indian economy with right policies. The demands from the urban middle class engaged in the lucrative service sector are unjustified. In any budget maximum allocation is for middle class and above through Interest payments. In the current budget the central government spent around 4.5 lakh crores on interest payments out of roughly 10 lakh crores of taxes collected.


Any budget has to be spent to bring more people into the middle income group and not on unjustified tax exemptions to the middle class. The biggest issue for the middle class is housing and the budget has concessions in that area. The budget also provides tax relief to renters. The genuine issue for the middle class is the ever increasing cost of real estate, education and health care which are more related to mafia-style operations in the economy. The focus on enhancing rural income can ultimately reduce migration and ease pressure on infrastructure and real estate in metros and urban areas.


The increased incomes in agriculture and rural sectors would help the urban middle class in the long run as it would minimize the sources of cheap labor and make wages competitive and reasonable across sectors. The genuine urban BJP middle class supporter should support and encourage this grand vision of Narendra Modi as this attempt for horizontal growth in Indian economy would make the nation strong, healthy and ultimately ensure stability for all.


The urban BJP supporter thinks the UPA government has lost because of not following their recently learned economic prescriptions from the west. The reality is it lost because of humongous and obnoxious corruption, unbearable arrogance and a formidable opponent in the form of a chaiwala who could instantly connect to the masses in the urban street as well as in the rural hinterland. With any other challenger UPA would have formed the government for the third time.


This budget is a good start but it’s a long road, full of challenges. The real test would be whether the MSP will be increased to ensure a decent income to farmers as repeatedly promised. It’s a very tight rope to walk; those surrounding the Prime Minister would scare and advise against it and the BJP’s own natural disposition militates against it. Will the Prime Minister take the call soon before it’s too late for 2019?

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