Rural Economy – Expectations from the Union Budget

More government expenditure: On infrastructure, especially in rural areas: Economists lay greater emphasis on increasing government investment in capital expenditure to (a) generate demand in the economy and (b) create a base for future growth. More investment should be made in rural infrastructure, including roads, housing, health and education, for both short-term gains and long-term growth. It is the rural economy that has been hit the hardest in recent years due to various economic shocks and slowdown.

Higher minimum wages: The last time the central government raised the national minimum wage was in 2019. The hike was by a mere Rs 2 - from Rs 176 to Rs 178 - while an expert committee set up by it to fix a national floor rate proposed Rs 375 per day (Rs 9,750 per month) as the statutory minimum, irrespective of sectors, skills, occupations and rural-urban locations, for a family of 3.6 consumption units, and an additional house rent allowance of up to Rs 55 per day for urban workers.

Expanding MGNREGS: in addition to raising minimum wages, the allocation for the MGNREGS should also be increased to provide 100 days of work - raising it from the current average of about 45 days. Experts also advocate a similar employment guarantee scheme for the urban poor.

Expanding PM-KISAN scheme to landless agriculture labour: The PM-KISAN scheme was launched in the 2019-20 budget (in February 2019) for the small and marginal farmers, with retrospective effect, just ahead of the general elections and was later expanded to cover big farmers too. It envisages an annual income transfer of Rs 6,000 in three installments.

A Universal Basic Income (UBI) scheme: The concept of a universal basic income (UBI) was first mooted by the former chief economic adviser Arvind Subramanian in his Economic Survey of 2016-17. The basic premise was: "A just society needs to guarantee to each individual a minimum income which they can count on, and which provides the necessary material foundation for a life with access to basic goods and a life of dignity".

Latin Manharlal Group

ICRA pegs India’s Q2 GDP Growth to ease to 7.2%

After registering a robust growth in the first quarter of this financial year, the pace of India’s economic growth is expected to have substantially slowed in the July-September quarter amid higher fuel prices and a weaker rupee.

According to a report by rating agency ICRA, the GDP growth of Indian economy is pegged at 7.2 per cent for the second quarter, dragged down by lacklustre agriculture and industry. The GDP had grown by a higher than expected 8.2 per cent in the first quarter of the fiscal as compared to the year-ago period. 

The report cited higher fuel prices and weakness in rupee as primary factors dragging the industrial growth. Further, the country has been affected by heavy rains in some states leading to massive flooding while the other states are dealing with significantly deficient and drought like situations resulting in to muted agricultural growth.

As per the report, overall, manufacturing GVA (gross value added) growth is expected to ease to 7 per cent in Q2 FY 2019 from the healthy 13.5 per cent expansion in Q1FY2019. The agency said higher commodity prices may support a shallow recovery in GVA growth in mining and quarrying from the marginal 0.1 per cent in Q1 FY 2019 to around 2.5 per cent in Q2 FY 2019, despite a slowdown in volume growth.  

However, services sector growth is expected to rebound to 7.8 per cent in the second quarter from 7.3 per cent in Q1 FY 2019, buoyed by a sharp pickup in the expansion in the Government of India’s non-interest revenue expenditure, a mild rise in growth of bank deposits, air and ports cargo traffic, as well as a moderation in the pace of FII outflows.

Going ahead, the Indian economy is expected to slow down in the second half of the fiscal, partly because of the base effect of higher growth last year. Tighter financial markets, a credit squeeze and the lagged impact of weak currency and high oil prices will continue to weigh on growth.

Latin Manharlal Group