NEW DELHI: The BJP’s poor performance in rural areas in the recent Gujarat Assembly elections and the perception of general rural disenchantment across the country suggests that the upcoming Budget may be a populist one with increased government spending on rural schemes.
But economists and finance ministry officials seem to be divided over whether the government has enough fiscal room for populist announcements.
“The government has some good urban schemes like Smart City Mission and AMRUT. But rural spending needs to be increased and agriculture sector needs to be strengthened.
The annual farm growth dipped to 1.7 per cent in the three months ending September, on account of lower prices and output,” said a senior ministry official.
Various sources have suggested the government may increase the spending on rural schemes by 20 per cent.
After the Gujarat election results, Minister of Finance Arun Jaitley admitted that the results from rural areas reflected farmers’ concerns. Adding that the government would “analyse” and “address” those concerns, Jaitley said, “Spending more is a necessity as far as rural India is concerned.”
The Budget could also see increase in spending on infrastructure, which the government has already listed as a priority area. So, transport and railways could see up to 25 per cent rise in allocation.
Another immediate challenge is bank recapitalisation plan. Bad loans across all listed banks have risen to `8.4 lakh crore, as of September 2017. The government has already announced a massive `2.11 lakh crore bank recapitalisation plan, of which `76,000 crore will come from budgetary allocations.
Economists have also been appealing to the government to increase spending on social security. In this context, the biggest challenge is to limit the fiscal deficit to 3.2 per cent of the GDP. “I am sure the government will stick to the deficit target. IThere is a political commitment to do this, though operational constraints may vary,” Rathin Roy, member of the PM’s Economic Advisory Council, said after a pre-Budget meeting with the finance minister.