The finance minister has given a clear signal that the focus is on where most of India lives?the small towns and villages. And to fuel growth, he is going to spend more than Rs 10,00,000 crore in the forthcoming year, which includes a whopping 37% jump or an additional $65 billion. Most of this is going to go into the government?s flagship schemes like National Rural Employment Generation Scheme and Bharat Nirman which in effect puts more money in the hands of rural Indian consumers.
It will be naive for India Inc to not take the hints and move forward. By increasing the government outlay by such large amounts, the finance minister is creating new markets. It is for us to now get out of our comfort zones and start catering in places where majority of Indians live. Rather than limiting ourselves to the big metros, we have to look at new ways in which we can evolve new distribution strategies, offer value added products and drive consumption in rural India.
Domestic demand and consumption has been the key driver for economic growth in the country. Till now, most of the domestic consumption demand was based out of the big cities with the top eight cities accounting for almost 40% of the total demand. Household savings in the country is among the highest in the world and statistics suggest that the poor are forced to save a much higher share of their income, than the rich.
With this Budget and its huge spending on rural India, the finance minister has set for himself ambitious targets of halving poverty by 2014, adding 12 million jobs each year and bringing 50% women under self-help groups. If this holds true and if 70% of India which resides in small towns and villages have more money in their pockets and spend more on consuming value added products. This has the potential to bring about a paradigm shift in the economy. So, whether it is on televisions, toothpaste or cars, increased consumption in rural India will create new jobs required for providing these value added products and services.
After many years, if not decades, the philosophy for driving growth is bottom-up, rather than depending on the ?trickle-down effect?. We are focusing on moving with the majority, rather than focusing on the affluent minority. Thus this Budget is a clear shift in terms of its ambitious vision for driving economic growth. However, what it lacks to an extent is innovative thinking and a clear plan for ensuring that the ambitious spending plan of the government delivers growth. It does not take into account behavioral economics on how the rural spending by the government can be productively used by rural consumers to enhance their quality of life.
With such a huge expenditure plan to manage, it will be critical for the government to ensure the spending is efficient and the money reaches the pockets of those who it intends to. While it can only be presumed that the finance minister is aware of this challenge, the Budget fails to bring in fresh thoughts on how this can be achieved. Had this too been part of this Budget, this could well have become one of the most significant Budget, comparable to the one delivered by the Prime Minister in 1991.
?The writer is Group CEO Future Group