One of the key pillars of domestic growth, viz rural economy has been severely impacted in recent times due to myriad reasons highlighted below. To counter the economic hardships that the rural economy has faced over the last two years, we believe rural economy is likely to remain a focal point of the Budget 2023-24.
- Agriculture input costs have registered a sharp increase, more so in the aftermath of the Ukraine Russia crisis, led by cost of diesel, electricity, fodder and animal feed. On annualized basis, agri input inflation has remained in double-digits for the last 20 months, though coming off to level of 20.3% in Dec-22 from a peak of 38.5% in Jun-22.
- In FY23, on a FYTD (Apr-Dec) basis, rural inflation remained consistently above urban inflation on average by 45 bps led by sub-components of Food and Clothing & footwear.
- As such, growth in real rural wages for both agriculture and non-agriculture occupations has persisted in negative zone over the last one year.
- Erratic & unpredictable weather has rendered agriculture output more vulnerable as borne out by excessive heatwave shriveling wheat crop in early 2022, slow advancement of Southwest monsoon in Jul-22 delaying Kharif sowing and subsequently harvest, and exceptionally heavy rains in Oct-22 weighing on perishables produce.
- COVID has had a more lasting impact on rural labour, with employment provided under NREGS remaining elevated upto Q1 FY23. Though it has come off since then, work demand continues to remain above long period average.
- The pace of improvement in CMIE rural sentiment index has come-off in 2022, in comparison to urban counterpart.
In addition, with COVID turning endemic amidst comfortable level of inoculation, COVID era relief measures are likely to end in FY23. The government has already made its intent clear by discontinuing the Pradhan
Mantri Garib Kalyan Anna Yojana (the free foodgrain distribution program) post Dec-22.
On a positive note, rural economy in the near term should be able to foster a turnaround premised on good progress of Rabi sowing (up 2.9%YoY as of 20 th Jan-23), Kharif harvest led improvement in cash flows, rural inflation coming off its peak accompanied by an ongoing moderation in input costs. But, to be able to contribute to headline GDP growth more meaningfully, rural economy would need a stronger stimulant. Budget 2023-24 can play a catalytic role in pushing rural growth, incomes, jobs and livelihoods by enhancing outlays of existing productive rural schemes, promoting technology in agriculture operations and encouraging investment in agri infrastructure.
Divert subsidy savings to rural capex
The discontinuation of the PMGKAY and the concurrent provision of free foodgrains under the NFSA (National Food Security Act) for a period of 1 year, allows fiscal saving to the extent of Rs 1 tn in FY24. This would mean a curtailment of fiscal support of an equal extent towards rural economy, unless it is counter-balanced. Budget 2023-24 must switch revenue expenditure composition, by enhancing outlay towards more productive rural schemes such as NREGS (National Rural Employment Guarantee Scheme), PM Awas Yojana – Gramin, PM Gramin Sadak Yojana among others.
Back Agtechs to flourish
Union Budget 2022 had set the ball rolling for the agtech sector last year by promoting the use of ‘Kisan Drones’ and setting up a fund under NABARD to finance agtech/agri startups. Given that agtechs via new-age technologies of blockchain, AI, drones and IoT are addressing chronic problems in agri value chains, Budget 2023-24 must ensure continued targeted support via a sizeable dedicated fund for financing, some tax relief measures and perhaps an interest subvention scheme amidst increased cost of borrowing. In addition, establishing an ‘Agtech facilitation cell’ to navigate government regulations and connect all stakeholders in the farm supply chain and network may prove to be a game changer.
Build micro granaries
From a policy perspective, distributional benefits of higher agriculture production hinges on two factors – One, minimizing post-harvest losses via improved warehousing facilities and, two, shortening delivery timelines. The insufficiencies in India’s existing agri infrastructure are well reflected in one of the highest global mark-ups between producer and retail food prices in India. Budget 2023-24 can incentivize a network of micro-granaries (akin to spokes) built around the existing FCI warehousing hubs.
These could be in the nature of PPP (Public private partnership) – ideally converting surplus land (wherever available) within India’s extensive network of Railway stations into micro food granaries, developed and maintained by private sector using state of the art technology (such as using AI to moderate high moisture levels, determine quality of grains etc.).
Overall, 2023-24 Budget is likely to retain its rural color with adequate focus on investments and infrastructure creation. Specific measures aimed to enhance growth potential of the rural economy along with enhanced outlay towards social welfare schemes can be expected. However, targeted micro focus needs to get balanced with maintenance of macro stability – we hope the finance minister persists on the path of fiscal consolidation by lowering the fiscal deficit (QuantEco estimate at 5.8% of GDP) and further boosting the quality of fiscal adjustment.
The author is an Economist at QuantEco Research