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View from India: Budget to boost rural improvement

The Union Budget 2018-19 has focused on rural India, hoping to create an aspirational level among rural consumers and thereby develop a market within this segment. The government has increased the budgetary allocation for the National Rural Livelihood Mission by 32 per cent over last year to scale up employment opportunities within the sector.

 

 

The rural sector has been the primary focus of the budget, with measures such as an assured minimum support price for crops, export liberalisation of agri-products which is expected to revive farm realisations and increased expenditure on rural infrastructure.

As per the Budget, 40million households are being provided with electricity connections under the Saubhagya Yojna scheme. An expenditure of 160bn rupees (£18bn) is being spent towards the fulfilment of this scheme.

When we look at rural infrastructure, the government has increased the budgetary allocation for rural road construction by 12.4 per cent under the Pradhan Mantri Gram Sadak Yojana scheme. If we were to look at the manner in which this segment will unfold, infrastructure projects are expected to open out employment opportunities. In practical terms, it can also sustain agricultural labourers and iron out agricultural losses when vagaries of nature like flood or drought affect a region.

Rural Mural, a recently released Budget analysis report from CRISIL, points out that the Budget looks to support growth in fiscal 2019 primarily by raising the rural demand. The focus is on rural infrastructure, which has been allocated, R14.34tn (£160.7bn), with around one-sixth coming from budgetary resources, the rest from other resources.

As indicated in the CRISIL Report, the budget is expected to boost labour-intensive export sectors such as agriculture, textiles, leather and footwear. Agriculture exports will rise, with the removal of export restrictions for crops. Beyond the realm of agriculture, one can foresee increased automotive demand particularly for heavy trucks, which are required to traverse the rural belt.

The budget has also taken measures to boost the growth of micro, small and medium enterprises (MSME) through initiatives such as a cut in corporate tax rate. In addition, incentives given to create employment in MSMEs can contribute to growth in private consumption. Small and medium enterprises – mainly textiles, leather and footwear industries – will be boosted as the corporate tax rate has been reduced from 30 per cent to 25 per cent for companies with a turnover up to R2.5bn in fiscal 2017. Rural Mural forecasts that the corporate tax cut will make MSMEs more competitive, facilitate ease of business and give impetus to schemes like Start-up India and Make in India.

The tax cut will also help in improving India’s competitiveness vis-à-vis its competitors like Vietnam and Bangladesh in these low-end manufacturing industries. The import growth at 8.2 per cent is expected to be higher than the export growth in fiscal 2018. The import growth has got a boost due to a sharp rise in oil imports (caused by higher oil prices), gold imports (which had risen significantly before the import growth can rise further in fiscal 2019) due to the continued rise in oil prices.

A favourable ecosystem is being laid out for the fintech space, which is considered an enabler for the MSMEs. The Ministry of Finance has formulated a group to examine the policy and institutional development measures required for creating the right environment for the development of fintech companies in India.

Increase in customs duty in certain electronics goods such as mobile phones and its parts and television parts is an import-substituting measure, which will help in curtailing imports, besides boosting domestic manufacture of these goods. The share of electronic goods in India’s total imports has risen rapidly from 7.6 per cent in fiscal 2014 to 11.7 per cent in fiscal 2018.

Coming to the tax proposals, salaried individuals will have a standard deduction of 40,000 rupees from salary income, replacing the current transport allowance of R19,200 and medical reimbursement of R15,000. Then the cess on income tax has been hiked from 3 per cent to 4 per cent, and this has increased the tax payable by all categories of taxpayers.

Under the Swachh Bharat Mission, the Government had already constructed more than 60 million toilets in various parts of the country. This has had a positive effect as it has ensured the overall health of family, apart from helping women and schoolgirls retain their dignity. It’s no surprise that the Budget is focusing on rural sanitation through the construction of around 20 million toilets.

The loans to Self Help Groups (SHGs) of women has increased to about R425bn in 2016-17 and is growing at 37 per cent over the previous year. The loans to SHGs reflect a health picture, it is hoped to increase to R 750bn by March 2019. In an effort to promote women’s empowerment, the National Rural Livelihood Mission has increased to R57.5bn in 2018-19.

Considering senior citizens form a major chunk of the population, it comes as a breather that the current investment limit under the Pradhanmantri Vaya Vandana Yojana (PMVVY) has been doubled to R1.5m. The scheme investment period has been extended until March 2020 against May 2018 as initially proposed. The scheme allows a fixed and assured income in the range of 8 per cent to 8.3 per cent depending on the mode of payment chosen for a 10-year investment horizon and is a suitable alternative to annuity plans available in the market. All senior citizens will now be able to claim an increased benefit of deduction in respect of any health insurance premium and/or any general medical expenditure incurred.

Ganga in Hindi or Ganges in English is among the country’s most sacred rivers and the Budget has announced that cleaning the Ganga is work of national importance. A total of 187 projects have been sanctioned under the Namami Gange Programme for infrastructure development, river surface cleaning, rural sanitation and other interventions. Already 47 projects have been completed and the remaining ones are at various stages of execution. All 4,465 Ganga Grams or villages on the bank of river have been declared open-defecation-free. The desired outcome is water conservation, better ecological outlays, more job creation and promoting domestic produce. Ganga, which is the lifeline of millions of people, was declared as the National River in 2008 by the Government of India. Ganga is a trans-boundary river of Asia, which rises in the western Himalayas in the Indian state of Uttarakhand, and runs south and east through the Gangetic Plain of North India into Bangladesh, where it flows into the Bay of Bengal.

Another interesting announcement is that bamboo has been declared as ‘Green Gold’. It is proposed to launch a Re-structured National Bamboo Mission to promote the bamboo sector in a holistic manner. When this endeavour pans out, it should encourage a new range of products crafted through trained skilled hands, and ensure a platform for buyers and sellers. It is also hoped that products should be fine-tuned and scaled up to the global demand.

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