The Union Budget has an imprint of Prime Minister Narendra Modi’s Gujarat experiment of rurban economics. It is probably for this reason that he mentioned in his Mann ki Baat on February 28 that even he has an exam on Monday, February 29. He did have one, when the stock market, midway in his government’s Budget, started to flicker and lose confidence. Of course, the market recovered rapidly, as the strategy, probably, sunk in.
In any emerging country, the Budget is more of a policy statement than a simple accounting exercise of income and expenditure of the government. In this year’s Budget, finance minister Arun Jaitley attempted a Herculean task to address the sagging economy through a new strategy of initiating national growth through the rural sector. The direct implications of a slowing economy are increasing unemployment, falling demand of industrial goods and lower consumption. This situation is also a recipe for many social problems and social unrest. Therefore, this is not a conducive economic environment for a country which is in the midst of a demographic dividend.
The stated priority of the government is to provide for vulnerable sections and rural areas, and also the creation of social and physical infrastructure in addition to continuing with ongoing reforms.
The finance minister has adopted the agenda to transform India and, to achieve that, would initiate policy measures through the announced nine distinct pillars—agriculture and farms, rural sector, social sector, education, infrastructure, financial sector, governance, fiscal discipline, and tax reforms.
Without doubt, the emphasis of the Budget speech was transforming the rural sector, and the focus this time has been on a different aspect of rural economy. The strengthening of physical infrastructure in rural areas is an important strategy reflecting rurbanic approach of development.
The development of rural areas is also expected to strengthen the village economy and is Gandhian in approach. The hypothesis seems to be that once the villages get stronger and rural life is vibrant with activities, the Indian economy would grow automatically.
This strategy should succeed for a plethora of reasons.
* First, the global economy is slowing down and inward-looking approach is warranted.
* Second, this would help in reducing migrant pressure on urbanisation.
* Third, there have been numerous studies showing rural population has sufficient purchasing power, so tapping rural economy has its rewards in generating demand for goods and services.
* Fourth, once the road network in rural areas gets better, accessibility to villages will improve and the movement of goods and services—both ways between urban and rural areas—would help in monetising the rural economy, bringing resources into the formal financial sector.
* Fifth, according to empirical evidence, public infrastructure investment raises domestic welfare by an equivalent of 80% of amount spent, in addition to output.
* Finally, well-developed rural areas would be better engines of growth, equitable and spatially dispersed than few urban centres.
This, indeed, is a path-breaking Budget which has a rural-centric development strategy rather than the oft-tried urban-centric and corporate-centric strategy. The Budget assumes that the trickle-down growth strategy can be tapped through rural sector too. If this strategy succeeds—and it should given that rural folk are equally innovative in approach—then it is like having millions, not just hundreds, of flowers blooming across the country. This will rejuvenate the sleeping rural India and open vast opportunities for industry.
Confucius, the Chinese philosopher, once said, “When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps.” That is exactly what the finance minister has done. In fact, the test has now begun for the Prime Minister and whether this new strategy will succeed in generating employment and growth. We believe it should, provided the right ecosystem is created. An obvious question that would be asked by analysts and academicians is whether this is the right strategy to follow?
In the current global situation—grim and sluggish—rather than depending only on countries in the East and the West, tapping the rich hinterland of our own country indeed seems to be the correct strategy. So far, the attempt had been to fly on one engine, urban-centric, and now the other engine is being prepared, which is rural-centric. If India has to attain a geostationary orbital position of 10% and above growth, the distinction between India and Bharat has to go—we have to focus on one India one Bharat. With a vast market, India can face global challenges more far more confidently. The path-backing reforms of 1991 were made possible with an army of economists available to the government, discussing, debating and disseminating the advantages of adopting the changes. The current government may also like to adopt a strategy wherein research and public debate would help in strengthening the path of a new policy course.
The author is RBI Chair Professor in Economics, IIM Bangalore. Views are personal